Mortgage Credit Certificates (MCC): how they work

Buying a home comes with a bill that lasts for years: mortgage interest. Some states and cities offer a Mortgage Credit Certificate (MCC)mortgage credit certificate (MCC)A mortgage credit certificate (MCC) is a document issued by a state or local housing agency that entitles you to a credit on your federal income tax return for part of the interest you pay on your mortgage each year. Unlike a deduction, the credit directly reduces the tax you owe. You claim it with IRS Form 8396, and any credit you cannot use in one year can be carried forward to the next. Each agency sets who qualifies, normally first-time buyers within income and price limits; you apply through a participating lender.See the full definitionClose that turns part of that interest into a credit against your federal tax, year after year. This guide is for anyone about to buy their first home or who already has an MCC: it explains what it is, how much it can be worth, who issues it, how to claim it and what happens if you refinance or sell, based on the law and IRS pages.

The credit rate your certificate can set, under the law

10% to 50%¹

The yearly cap on the credit when the certificate rate exceeds 20%

$2,000¹

To use credit you could not subtract in the year

3 years³

If you sell sooner, you may repay part of the benefit

9 years³

What an MCC is

An MCC is a certificate issued by a state or a political subdivision (a city or a county, for example) under a qualified program. It is issued when you buy, rehabilitate or improve your main home, and it states two numbers: the credit rate and the certified debt amount.¹ The IRS explains that the credit is meant to help lower-income people afford home ownership, and that an MCC is generally issued only with a new mortgage to buy your main home.³

With the certificate, each year you subtract from your federal tax a credit equal to the certificate rate times the interest you paid that year on the certified debt.¹ A credit comes straight off your tax; the Texas program, for example, describes it as a dollar-for-dollar reduction of your federal tax liability.⁹

What it is worth: the rate, the cap and your tax

Three rules decide how much it helps. First, the rate: the law says the certificate rate may not be less than 10% or more than 50%.¹ Second, the cap: if the rate exceeds 20%, the year’s credit cannot exceed $2,000, and if the home has several owners, that cap is split by each one’s share.¹ Third, your tax: after the cap, the credit generally cannot exceed the tax you owe; what you could not use carries over to the next 3 years or until used.³

Only interest on the certified debt counts. If your loan is equal to or smaller than that debt, you count all of the year’s interest; if it is larger, you count only part, based on the ratio of the certified debt to the original loan amount, and that ratio does not change.³

Example with real numbers

How the credit is built on a typical loan

With the FHA loan on a typical US home and this week's average 30-year rate. Your program sets your certificate rate.

Loan (typical home, FHA, without the upfront premium)

$321,056

Average 30-year interest rate (November 5, 2026)

7.18%

The year's credit

Interest paid in the year × your certificate rate

If your certificate rate exceeds 20%

The credit does not exceed $2,000 a year

What you subtract from your federal tax

The credit, up to what you owe; the rest carries to the next 3 years

This is an example with national numbers, not a promise.¹³ With your own loan and rate, the calculator shows how much interest you pay.

Run it with your numbersMortgage calculator

Who can get one

Each program publishes its own rules, but the law sets a base. The certified debt has to meet residence, 3-year, purchase price and income requirements.¹ The 3-year rule is the first-time buyerfirst-time homebuyerUnder the definition HUD uses, a first-time homebuyer is a person, and his or her spouse, who has not owned a home during the three years before the purchase. There are exceptions: a single parent or a displaced homemaker is not excluded just because he or she owned a home with a spouse while married. Nor does it count if you only owned a home that was not on a permanent foundation, or one that did not meet building codes and could not be brought up to code for less than the cost of building a new one. Each program may use its own definition.See the full definitionClose rule: no ownership interest in your main home in the 3 years before you sign the mortgage, with exceptions such as targeted-area homes and financing for veterans who have not used it before. The price may not exceed 90% of the average area purchase price, and family income generally may not exceed 115% of the applicable median family income (140% in targeted areas).²

The law also says the program cannot be limited to loans from particular lenders, except as regulations provide; that the certificate cannot be transferred; and that no MCC is issued for a home financed with a qualified mortgage bond.¹ The agency must publish the requirements at least 90 days before issuing certificates.¹

A real example: the Texas program says it is available to veterans and first-time homebuyers with a first mortgage through the program, and also as a stand-alone option.⁹ Each state, city or county may have its own, or none: ask in your area.³

If this is you

You are a first-time buyer

The 3-year rule without a home of your own is the base; check your program's income and price limits.²

You are a veteran

The law has an exception to the 3-year rule for veterans who have not used it before.² Texas, for example, opens its MCC to veterans.⁹

Several people are buying

If the rate exceeds 20%, the $2,000 cap is split by each owner's share.¹

You are buying with an ITIN

Of the 134 programs in our database, in 110 the official source does not say whether they accept an ITIN. Ask your state agency directly.³

How to get one: before the mortgage

Order matters. The IRS says you must contact the government agency that issues the MCC before you get the mortgage and buy your home, for example your state or local housing finance agencystate housing finance agency (HFA)A state housing finance agency (HFA) is a public body created by an act of a state legislature, or by a local government, with the power to finance housing. In that federal definition, "state" includes Puerto Rico and the District of Columbia. Its mission is to increase affordable housing for renters and homebuyers with low to moderate incomes, especially first-time homebuyers. HFAs usually do not lend directly: they work with participating lenders that offer their loans and down payment assistance. Programs vary by state.See the full definitionClose.³

From the program to your tax return

1. 1. Find your state or city program

   Before you choose a loan

   Contact the housing finance agency before you get the mortgage.³

   Try it with your numbersWhich programs might I qualify for?

2. 2. Check the requirements

   Before you make an offer

   Main home, 3 years without owning (with exceptions), price and income.²

3. 3. Close with a new mortgage

   Closing day

   An MCC is generally issued only with a new mortgage to buy your main home.³

4. 4. Claim the credit every year

   With your federal return

   Complete Form 8396 and attach it to your 1040, 1040-SR or 1040-NR.³

5. 5. If you refinance, request a new MCC

   Before you refinance

   Without a new MCC you cannot claim the credit on the new loan.³

6. 6. If you sell, check recapture

   Within 9 years

   You may repay part of the benefit; it is figured on Form 8828.⁶

The CFPB says many states and local organizations offer programs for first-time buyers, and suggests looking up a HUD-approved counseling agency or calling the HOPE Hotline, (888) 995-4673, 24 hours a day.¹⁰ The which programs do I qualify for tool searches programs in our database, and the down payment assistance guide explains the other kinds of help.

The MCC and your loan

An MCC can also matter when the lender calculates whether you qualify. On loans Fannie Mae buys, MCCs let you claim a credit for a percentage of interest, usually 20% to 25%. To calculate your debt-to-income ratiodebt-to-income ratio (DTI)Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, that is, income before taxes. If you pay a certain amount each month across a car, cards, student loans and the mortgage you are asking for, and you earn three times that, your DTI is one third. Lenders use it to measure whether you can manage the payment; each loan type and lender sets its own limit, and assistance programs usually publish theirs. Paying down debt before applying improves your DTI.See the full definitionClose, the maximum MCC benefit is added to your income rather than subtracted from the payment, with this formula: loan amount × note rate × MCC percentage ÷ 12. On a purchase, the lender obtains a copy of the MCC.⁸ Other lenders may have different rules; ask how they count it.

How to claim it every year

Each year you complete Form 8396 and attach it to your return (1040, 1040-SR or 1040-NR).³ The IRS says the form is used to figure the year’s credit and any carryforward to the next year.⁴ On line 2 you enter your certificate’s credit rate, not your mortgage interest rate, and the form asks for the issuer’s name, the certificate number and its date.⁵

If you itemize on Schedule A, you must reduce your mortgage interest deduction by the amount of the credit.³ If someone prepares your tax returntax returnA tax return is the yearly form you use to report your income to the IRS and figure the tax you owe, so you can pay what is due or get a refund. The federal return for individuals is Form 1040. In general you must file if your gross income is above the minimum the IRS sets for your filing status, or if you had a certain amount of net earnings from self-employment; even when you do not have to, filing can pay off. You need your SSN or ITIN, and those of everyone else on the return, plus documents such as your W-2s and 1099s.See the full definitionClose, bring your certificate. VITAVITA (free tax preparation)VITA (Volunteer Income Tax Assistance) and TCE (Tax Counseling for the Elderly) are IRS programs that offer free basic tax return preparation by IRS-certified volunteers. They are meant for people with moderate income, people with disabilities and limited-English speakers; TCE focuses on people sixty and older. The IRS sets no program-wide income limit, but individual sites may set their own. Many sites serve in Spanish and help with ITIN applications and renewals. Filing taxes every year builds the record lenders ask for.See the full definitionClose sites prepare basic returns for free for those who qualify, although services vary by site; ask whether they can help with Form 8396.¹²

The certificate is in effect from its issue date until the agency revokes it or the home stops being your main home.¹

If you refinance or sell

If you refinance the loan that had the MCC, you need a new MCC to claim the credit on the new loan, and the credit may change.³ Ask the agency before you sign the refinancerefinanceTo refinance is to take out a new mortgage loan to pay off and replace the one you have. According to the CFPB, common reasons are to lower the interest rate, lower the monthly payment or borrow additional money. When you refinance you usually pay closing costs again. If your payment goes down, the CFPB says to understand how much of the drop comes from a lower rate and how much from a longer loan term. In many refinances you have a right to cancel (right of rescission) until midnight of the third business day, but not if you refinance with the same lender without borrowing more.See the full definitionClose.

If you bought with an MCC and sell within 9 years, you may have to recapture (repay) all or part of the benefit.³ You repay it by increasing your federal income tax for the year of sale, even if you can exclude your gain, and you must file Form 8828 with your return whether you sold at a loss or a gain. If you had a loss, you repay nothing.⁶ On the form, the gain is multiplied by 50%, and if your income does not exceed your adjusted qualifying income, you do not owe recapture tax either.⁷

What it gives, what it asks and what it can cost

Every year

What it gives you

• A credit equal to the certificate rate times the year's interest.¹
• Anything you cannot use carries over to the next 3 years.³
• On Fannie Mae loans, its benefit is added to your income.⁸

Before and after

What it asks of you

• Requesting it before you get the mortgage.³
• Completing Form 8396 every year.³
• A new MCC if you refinance.³

If you sell early

What it can cost you

• Repaying part of the benefit if you sell within 9 years.³
• Nothing if you sell at a loss.⁶

Before you sign, ask the agency for its reissuance and recapture rules in writing.³⁶

Questions to ask the agency

The law requires the agency to publish the requirements for the certificate before issuing it, so ask for them in full.¹ These questions help you compare and avoid surprises:

• What credit rate does your certificate give, and what is the maximum certified debt?
• What are the income and price limits for my county and my family size?
• Do I have to be a first-time buyer, or is there an exception for veterans or for my area?
• How do I request the certificate, and at what point in the purchase?
• Is there any fee for the certificate, and who charges it?
• Can it be combined with your program’s down payment assistance?
• What happens if I refinance? How do I request reissuance?
• What will you give me in writing about recapture if I sell within 9 years?
• If I buy with an ITIN, do you accept it?

Write down the answers and keep them with your purchase papers. If anything is unclear, a HUD-approved housing counselor can go over the answers with you.¹¹

Costly mistakes

• Mistake: Getting the mortgage first and asking about the MCC later.

  Instead: Contact the agency before you get the mortgage and buy.³

• Mistake: Entering your mortgage rate on Form 8396.

  Instead: Line 2 takes your certificate's credit rate.⁵

• Mistake: Claiming the credit and also the full interest deduction.

  Instead: If you itemize, reduce your interest deduction by the amount of the credit.³

• Mistake: Refinancing without requesting a new MCC.

  Instead: Without a reissued MCC you cannot claim the credit on the new loan.³

• Mistake: Selling within 9 years without filing Form 8828.

  Instead: It is filed with your return, even if you sold at a loss.⁶

• Mistake: Losing credit you could not use.

  Instead: The excess carries over to the next 3 years; track it on Form 8396.³⁴

What to do this week

1. Look up your state and city housing finance agency and ask whether it offers an MCC.³
2. Check its requirements for main home, first-time buyers, price and income.²
3. If you have a loan in mind, ask the lender how it counts the MCC for qualifying.⁸
4. Estimate how much interest you would pay with the mortgage calculator.¹
5. Get help from a HUD-approved housing counselor, often for free or at low cost.¹¹
6. If you already have an MCC, keep your certificate with your tax papers for Form 8396.⁵