Many homebuyers do not realize how much help their very own state has to offer them when buying their first home of their own. The following are examples of the first-time homebuyer programs that most states offer such as home loan, tax credit, education, and grant programs.
Mortgage Revenue Bond “State Bond Loan” Programs
One of the best programs available throughout the United States is a Mortgage Revenue Bond (MRB) program, also known as a “State Bond” loan. Through these state-sponsored home loan programs, eligible homebuyers can obtain a below-market interest rate from their local Housing Finance Agency (HFA). They can be paired with and FHA, USDA, or Conventional loan.
In general, to qualify for a state bond loan you must:
- not have owned a home in the past three years (unless in a target area)
- meet the applicable income limits which vary by county
- purchase a home that is below the county’s purchase price limit
- continue to occupy the home for as long as they keep the loan
While other restrictions apply and vary by state, these are the main requirements to qualify for the state bond loans in any of the 50 states. To continue benefitting from the below-market rate loan, you must occupy the property as your primary residence and if you sell it in the first nine years and your income has gone up substantially (more than 5% a year over the maximum limits) you may be required to pay a federal recapture tax to the Internal Revenue Service (IRS).
This home loan program is available in every state and it can be paired with FHA, VA, USDA and Conventional home loans products.
Learn more about the great home loan programs available from your state by clicking on the appropriate link on the left side of this page. The actual mortgage rates being offered vary and depend on current financial conditions. For this reason the rates offered by your state may be more, or less, beneficial to you. For that reason it is important to shop and compare your financing options carefully before making a final decision.
Down Payment Assistance Programs
One of the biggest challenges for most first-time homebuyers is coming up with enough cash to cover the required down payment and closing costs.
The required cash to close can really add up. For example, with an FHA loan you may need to come up with 3.5% of the purchase price for a down payment and a few more thousand dollars for closing costs.
Fortunately, to help lower the amount of cash you need to buy a home, your state, city, county or non-profit housing agencies may offer a Down Payment Assistance Program (DAP). DAPs can significantly lower the amount of cash you need to have saved in order to purchase a home, as well as, lower your ongoing house payment to make homeownership affordable.
To qualify for these program typically the households must:
- meet specific income limits
- must not have owned and occupied a home in the past three years
- must meet all other applicable program requirements
To see if your local housing agency offers a down payment assistance program in your area click on your state on the left side of this page.
Mortgage Credit Certificate (MCC) Program
As an alternative to the State Bond Loan program, a few, but not all, of the state housing finance agencies also offer a federal tax credit from the IRS known as the Mortgage Credit Certificate (MCC) Program. The states that do offer the MCC program have an “*” after their name.
In addition to these states, some cities and counties also offer the program throughout the United States, so it is worth asking your local housing agency about the program as well.
The MCC program offers income-eligible first-time homebuyers an ongoing federal tax credit. While the precise amount of the tax credit varies by program administrator, the program provides eligible homebuyers a dollar for dollar reduction in their federal tax liability for as long as 30 years!
In general to qualify for the MCC program, a borrower must also meet the following requirements:
- must not have owned and occupied a home in the past three years (unless buying in a target area)
- must meet the applicable income limits which vary by county
- must purchase a home that is below the county’s purchase price limit
- must continue to occupy the home and keep the loan to claim the credit
Other restrictions apply and vary by the state, city and county who administer the program.
To claim the MCC tax credit you must occupy the property as your home (primary residence). Also if you sell the home it in the first nine years and your income has gone up substantially (more than 5% a year over the maximum limits) you may be required to pay a federal recapture tax to the Internal Revenue Service (IRS). Check with your state and your lender for details.
Tax Credit Programs
The $8,000 first-time homebuyer tax credit from the Internal Revenue Service (IRS) has expired. It was great while it lasted, but for now it is a thing of the past.
Even though you missed out on the $8,000 tax credit, many state and local governments offer the Mortgage Credit Certificate (MCC) program. The MCC is also a homeownership tax credit program from the IRS and it may be available in the area you want to buy. The listing of states on the left side of this page offer the program statewide. In addition, many cities and counties throughout the United States also offer the program.
Mortgage Credit Certificate (MCC)
The Mortgage Credit Certificate (MCC) program provides eligible borrowers a dollar-for-dollar tax credit which lowers the amount of federal taxes they are required to pay to the IRS. An MCC is an on-going federal tax credit that can continue year after year for as long as you retain the loan and occupy the home as your primary residence.
Amount of the MCC Tax Credit
The amount of the MCC tax credit is based on a percentage of the amount of mortgage interest you pay on the first mortgage loan. The exact percentage of first mortgage interest you can claim is determined by the state, county or city that administers the program for your area.
Here is an example of how the MCC tax credit is calculated assuming the agency administering the MCC program set the percentage at 20%, the loan amount is $200,000, and the interest rate is 5.00%:
$200,000 x .05=$10,000 (annual interest)
$10,000 x .20=$2,000 (annual tax credit)
In this exanple the MCC holder would pay $2,000 less in federal taxes, assuming they had at least $2,000 in total federal tax liability.
To qualify and to claim the MCC tax credit, the borrower or co-borrowers typically must:
- Be a first-time buyer (unless purchasing in a designated target area)
- Meet the applicable income limits adjusted for household size and county
- Purchase an eligible home that meets the purchase price limits
- Purchase a property in the MCC administrator’s program area
- Continue to occupy the home as their primary residence
- Must correctly claim the mortgage credit certificate on their federal tax return each tax year
Claiming the MCC Tax Credit
MCC holders claim the federal tax credit when they file their annual taxes. The annual tax may continue to be claimed year after year as long as the MCC holder keeps the same loan and owns and occupies the home as their primary residence. Some MCC administrators allow the credit to be reissued when the homeowner refinances. while other programs do not reissue the credit when the MCC holder refinances.
Compatibility of the MCC Program
An MCC can be used with a variety of loan types including an FHA, VA, USDA, and conventional home loan programs. An MCC may not be combined with a Mortgage Revenue Bond (State Bond) loan from a housing finance agency or a loan from a state VA loan program.
Accessing the MCC Program
To see if the MCC program is available in your state see if for your state’s name is listed on the left of this page. If not, you may also inquire with your local county or city government housing agency to see if the program is available to you locally.
MCC – Helpful Hints
Don’t be surprised if your MCC during the first year doesn’t get you a big fat tax break. To get the maximum amount of credit you need to pay your mortgage the entire year. The earlier in the year you buy your home, the more benefit you will get that first year. Don’t worry – the following year you will get the full amount of the credit.
It is also helpful to know that you still get to claim the rest of your mortgage interest (the portion of interest not claimed as a credit) as a tax deduction just like normal.
Lastly, if you can’t use the full amount of the MCC tax credit one year, you can carry it over for three years.
Other restrictions and rules apply for the MCC program so you need to check with your state or local program administrator for additional program details and requirements.