First-Time Homebuyer Tax Credits
Between tighter mortgage rules and down payment obstacles, securing a mortgage has its challenges. But once you meet a lender’s qualifications for financing and you’re approved for a home purchase, the benefits of owning can outweigh any setbacks you encountered during the mortgage process.
Among the benefits of homeownership include the opportunity to build wealth and equity, plus enjoy the pride that comes with owning your own home. But the benefits don’t stop here. If you’re a first-time homebuyer, you may be eligible for a tax credit.
How to Qualify for a First-Time Homebuyer Tax Credit
Don’t confuse a tax credit with a tax write-off, which reduces your taxable income. A credit is a dollar-for-dollar deduction of taxes owed. Some cities and counties have a Mortgage Credit Certificate (MCC) program specifically for first-time homebuyers. The program is designed to encourage ownership and help new borrowers save money each year.
If eligible, you can claim a federal tax credit up to a percentage of the interest you pay on the mortgage annually. The actual percentage varies, but can be as high as 20% or 30% of the interest paid. As a bonus, you’re allowed to write-off the remaining percentage of interest paid as a tax deduction.
The tax credit reduces your tax liability. This provide expendable cash which you can use toward a mortgage payment or other expenses. The best part: you can take advantage of this yearly tax credit for as long as you have the mortgage.
Qualifying for a First-Time Homebuyer Tax Credit
Fortunately, not everyone qualifies for this tax credit. To be eligible for this program, you must get a mortgage loan with an MCC-approved lender and receive a mortgage credit certificate. This program is intended for first-time home buyer’s and people who haven’t owned within the past three years.
Your income must be at or below the maximum income limit for your area, and the sale price of the home you’re purchasing must be at or below the maximum price for your area. The Mortgage Credit Certificate program is only for primary residences, so you can't use the credit with an investment property.
Homeownership offers financial security and stability, but the cost of owning can be overwhelming as a first-time homebuyer. Even so, tax breaks like the mortgage credit puts homeownership within reach.