How to Save Thousands when Buying your First Home

Most counties and state authorities will have programs but this particular program can help you save 20% of all the interest you pay per year for the life of the loan when you purchase a primary residence. This incentive can account for thousands of dollars over the life of the home loan.

The program is a called a mortgage credit certificate or MCC.

Each county in the US will have its own percentage offered but this article focuses on the program in Orange County, CA which is currently 20% of all interest paid annually.

Its important to note that the program benefit is a 20% tax credit not a tax deduction. A Tax credit allows for a dollar for dollar benefit on up to 20% of the annual interest paid while a tax deduction only gives you a fractional benefit against each dollar of interest paid.

(example: $1 dollar of interest paid in the 40% fed/state = .40 cents tax benefit for a tax deduction vs a tax credit, for each $1 dollar of interest paid = $1 dollar of tax benefit up to 20% of the interest paid)

The remaining 80% of your interest is still deductible as well so this is a way to maximize your tax benefits of owning a primary residence.

If the benefit were compared in terms of rate reduction it would effectively lower your rate by approximately .85% annually so that 4.25% mortgage would in essence be 3.4% prior to being able to deduct your interest. If you were in the combined 40% federal and state tax brackets your effective rate would be 2.04% after deducting the remaining 80% of your interest.

Some requirements for the program are:

1) you have not owned a property in which you used as a primary residence in the last 3 years (you could own rentals but not second or primary homes)

2) you make less than 91,500 income per a house hold of 3+ as determined by income in the last 12 months

3) you agree to occupy the current property you're purchasing as a primary residence

4) your property must be a single family residence, condo, or single unit ( no multi units or granny units)

5) Property must meet sales price limits, each county has different sales price limits for targeted and or targeted areas

The Advantages of the program beyond is the monetary benefit to the home owner is pretty profound as well since the tax credit is seen as income back to you as a borrower. So what this means is that the MCC tax credit each month counts as additional qualifying income so you can in essence qualify for more home by utilizing the MCC. It adds a little kicker to your purchasing power of up to 10-30k avg. which may be an extra bedroom, better amenities, or a better neighborhood in some cases.