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KHC Mortgage Credit Certificate - More Great News For First-Time Home Buyers

KHC Mortgage Credit Certificate - More Great News For First-Time Home Buyers

The KHC Mortgage Credit Certificate (MCCs) are a means of providing financial assistance to First-Time Home buyers (with some exceptions) for the purchase of qualifying Residences.

The 2009 KHC Mortgage Credit Certificate Program is designed to benefit purchasers of certain new or existing housing units located in the Commonwealth of Kentucky.


KHC Mortgage Credit Certificate for Kentucky First Time Home Buyers

  • What is a Mortgage Credit Certificate?

An MCC "converts" a portion of an available mortgage loan interest deduction into a credit against the homeowner's federal income taxes. This tax credit has the effect of reducing the mortgage interest rate and mortgage loan payments for persons who make qualified purchases of Residences by reducing the federal income tax liability of such persons.

Table I below shows how an MCC can reduce the"effective" mortgage interest rate on a conventional mortgage.


  • What is the difference between a "tax credit" and a "tax deduction"?

A "tax credit" entitles a taxpayer to subtract the amount of the credit from his other total federal income tax liability. A "tax deduction," on the other hand, is subtracted from adjusted gross income before federal income taxes are computed.


  • Who is eligible for the MCC?

Any first time home buyer, defined as a person who has not owned a home for the past three years and also meets the KHC income limits.


  • Is the MCC program a KHC program?

The MCC program is being administered by KHC. However, your loan program must be a non-KHC loan. You can not obtain a KHC loan and qualify for an MCC.


  • How does an MCC "reduce" the mortgage interest rate?

As Table I below indicates, a Borrower who purchases an Eligible Residence with a 5.50 percent fixed rate 30-year mortgage of $100,000 would pay $5,500 in interest payments during the first year of the mortgage.

If the Borrower holds a 25 percent MCC, up to $1,375 (25 percent of $5,500) of the mortgage interest paid could be converted into a federal tax credit, which reduces that Borrower's federal income tax liability, i.e., the credit reduces the amount of federal taxes payable by the Borrower, up to the amount of the credit.

The remaining 75 percent of the mortgage interest paid, in this case, $4,125, can still be taken as a tax deduction in arriving at the Borrower's adjusted gross income, thus reducing the amount of the Borrower's income subject to federal income taxation.

Table I below shows that if this Borrower has an annual tax liability of $1,375 or more after all other deductions and credits, the effective rate of interest paid on the mortgage is reduced to 4.125 percent after the MCC tax credit is taken into account, i.e., annual interest of $4,125 on a $100,000 mortgage loan corresponds to a 4.125 percent interest rate on that loan.

This effect, however, is achieved only when the MCC holder has a sufficient income tax liability to receive the entire benefit from the MCC tax credit.



Table I: Effective Reduction of MortgageInterest Rate Through Use of a 25% MCC

The MCC tax credit reduces the amount of federal income taxes otherwise due by the Borrower. The benefit to the Borrower cannot exceed the Borrower's federal income tax liability for the year, after other credits and deductions have been taken into account.

However, if the Borrower is unable to use all of the available MCC tax credit in any year, the unused portion of the tax credit can be carried forward three tax years or until used, whichever comes first. A Borrower may want to consider adjusting his or herf ederal income tax withholding (by filing an amended IRS Form W-4) to spread the benefit of the MCC tax credit over the entire year.



  • How does a First-Time Home Buyer obtain an MCC?

First-Time Home Buyer who is purchasing a New or Existing Residence applies for an MCC through a Participating Lender at the same time as applying for a mortgage loan.


  • May an MCC be used in connection with a refinanced loan or with an


An MCC cannot presently be issued to a homeowner who is refinancing an existing mortgage loan, except in connection with certain construction loans. An MCC may be assumable by certain qualified buyers.

Contact your lender for additional information.


  • What are the Purchase Price and Income Limitations on MCC Applicants?

MCCs are available to eligible first time home buyers purchasing eligible homes in the commonwealth. Your lender will advise you regarding the underwriting procedures required to determine qualification and eligibility of each Applicant for an MCC. Participating Lenders will process the underlying mortgage loans using standard procedures, with adjustments to those procedures as needed in order to satisfy the Program Requirements.


  • Can I receive the KHC MCC through any lender?

No. The MCC Program is only offered by qualified participating lenders and is not available through all mortgage lending companies.


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Lizette Fitzpatrick- Principal Broker at Lizette Realty.

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Note: This information has been provided to be used as a general guidance and is not intended to constitute as legal advice, tax advice, accounting services or professional consulting. Before making any decision or taking any action you should consult a professional advisor. Consult Amy Heiden, a Century Mortgage Loan Officer for MCC program information. 859-309-3800

Information is subject to change without notice and was originally complied from and the participating lender manual.

Copyright © 2009 By Lizette Fitzpatrick, All Rights Reserved

KHC Mortgage Credit Certificate - More Great News For First-Time Home Buyers

Comment balloon 1 commentLizette Fitzpatrick • August 11 2009 09:16PM


Nice summary of this program Lizette.  I may just hae to reblog it. 

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) almost 10 years ago

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