— MORTGAGE CREDIT CERTIFICATE

Mortgage Credit Certificate

for First-Time Buyers

A federal income tax credit program for eligible first-time homebuyers – administered at the state and local level to improve long-term affordability through a dollar-for-dollar annual reduction in federal tax liability.

— ABOUT THE MCC

What Is a Mortgage
Credit Certificate?

A Mortgage Credit Certificate is a federal tax credit program authorized under the Internal Revenue Code and administered by state and local housing finance agencies. It allows eligible first-time homebuyers to convert a defined percentage of their annual mortgage interest into a direct federal income tax credit – a dollar-for-dollar reduction in the amount of federal income tax owed, not merely a deduction that reduces taxable income.

This distinction is significant. A tax deduction reduces the income on which tax is calculated. A tax credit reduces the actual tax liability itself. For a borrower in the 22% federal tax bracket, a $2,000 deduction saves $440. A $2,000 tax credit saves $2,000. The MCC provides the latter.

The credit is available annually for as long as the borrower holds the mortgage and occupies the home as a primary residence, subject to program requirements. This makes it a sustained long-term benefit rather than a one-time financial assistance payment.

MCC programs are administered independently by each state or local housing finance agency. Credit percentages, income limits, purchase price limits, eligible property types, and program availability vary by location. Pacific Home Loans works with MCC programs across multiple licensed markets where programs are available and actively funded.

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— HOW THE MCC WORKS

How the Mortgage Credit
Certificate Functions

The Annual Tax Credit Calculation
Each MCC specifies a credit rate – the percentage of annual mortgage interest the borrower may claim as a federal tax credit. Rates vary by program but commonly range from 15% to 25%, with 20% being a frequently used threshold. The credit is calculated each year based on the mortgage interest paid during that tax year, multiplied by the applicable credit rate.

For example: A borrower with a $500,000 mortgage at 6.5% pays approximately $32,500 in mortgage interest in the first full year. At a 20% MCC credit rate, the annual federal tax credit is $6,500. The remaining 80% of mortgage interest – $26,000 – may still be claimed as an itemized deduction, subject to standard federal tax deduction rules.

The credit amount changes each year as the mortgage interest paid changes – decreasing as the loan amortizes and the interest component of each payment declines.

The Annual Credit Cap
Federal law caps the MCC tax credit at $2,000 per year when the credit rate exceeds 20%. For programs with credit rates of 20% or below, no cap applies. The $2,000 cap is a federal constraint that applies regardless of the administering state’s program design.

Impact on Qualifying Income
Some lenders and loan programs allow the anticipated annual MCC benefit to be treated as additional monthly income for loan qualification purposes. When applicable, this can increase the borrower’s qualifying income and therefore their effective purchasing power – a meaningful benefit in markets where qualifying at a sufficient loan amount is a primary constraint.

Tax Recapture
Federal law includes a recapture tax provision for MCC-assisted mortgages. If the property is sold within nine years of the original purchase and the borrower’s income has increased above defined thresholds at the time of sale, a portion of the MCC benefit received may be subject to federal recapture tax. The recapture amount is limited to the lesser of 50% of the gain on the sale or 6.25% of the original loan amount. In practice, many borrowers are not subject to recapture at all – but this provision should be disclosed and discussed with a qualified tax professional before the program is used. Pacific Home Loans does not provide tax advice.

Refinance and Reissuance
If a borrower refinances a mortgage to which an MCC is attached, the original MCC becomes void upon refinancing. The MCC benefit does not automatically transfer to the new loan. To preserve the tax credit benefit after refinancing, the borrower must apply for and receive a reissuance certificate from the issuing housing finance agency. Failure to obtain reissuance results in the permanent loss of the remaining MCC benefit. This is a critical requirement that should be addressed specifically before any refinance of an MCC-assisted mortgage is completed.

— ELIGIBILITY

General MCC
Eligibility Requirements

While specific program requirements vary by state and administering agency, MCC programs generally share the following eligibility framework:

First-Time Homebuyer Requirement
MCC programs are typically limited to first-time homebuyers, defined under federal guidelines as borrowers who have not owned a principal residence at any time during the three-year period ending on the date of purchase. Prior homeownership does not disqualify a borrower permanently – the three-year look-back is the applicable standard. Certain targeted area exceptions may allow non-first-time buyers to participate in designated geographic areas.

Income Limits
Household income must fall at or below the program’s defined limits, which vary by family size and geographic area. Income limits are set by each housing finance agency based on area median income data and are updated periodically.

Purchase Price Limits
The acquisition cost of the property must not exceed the program’s maximum purchase price limit, which varies by county and is updated periodically by the administering agency.

Primary Residence Requirement
The MCC applies only to properties occupied as the borrower’s primary residence. Investment properties and second homes are not eligible.

Loan Program Compatibility
MCC programs are compatible with a range of mortgage types, including FHA, VA, conventional (including HomeReady® and Home Possible®), and in some cases USDA loans, subject to the requirements of the specific MCC program and the mortgage program being combined.

— HAWAII MCC PROGRAM

Hawaii MCC Program
HHFDC Guidelines and Limits

The Hawaii Housing Finance and Development Corporation (HHFDC) administers the MCC program for eligible first-time homebuyers in Hawaii. The program provides a federal income tax credit of up to 20% of annual mortgage interest paid, subject to program eligibility and the federal $2,000 annual cap where applicable.

2026 Hawaii MCC Purchase Price Limits

Honolulu County

$785,429

Maui County

$996,440

Kauai County

$996,440

Hawaii County (Big Island)

$527,526

Purchase price limits apply to fee simple, fully completed units. Leasehold properties and uncompleted units may require acquisition cost adjustments under IRS guidelines.

2026 Hawaii MCC Income Limits (Non-Targeted Areas)

Honolulu County

Family Size 2 or Less: $142,419
Family Size 3 or More: $163,782

Maui County

Family Size 2 or Less: $136,920
Family Size 3 or More: $159,740

Kauai County

Family Size 2 or Less: $136,800
Family Size 3 or More: $159,600

Hawaii County (Big Island)

Family Size 2 or Less: $107,200
Family Size 3 or More: $123,280

Income limits are subject to change by HHFDC pursuant to IRS guidelines. Targeted area properties may carry different income and purchase price limits – confirming the applicable parameters for a specific property location is an essential step in the pre-approval process.

Hawaii MCC Refinance Reissuance Requirement
If an existing HHFDC MCC-assisted mortgage is refinanced, the original MCC becomes void. To preserve the tax credit benefit, the borrower must apply for and receive a reissuance certificate from HHFDC prior to or concurrent with the refinance closing. Failure to obtain reissuance results in permanent loss of the MCC benefit. Borrowers with an existing Hawaii MCC who are considering refinancing should address this requirement with their loan officer before proceeding.

— OTHER MARKETS

MCC Programs Across Pacific
Home Loans’ Licensed Markets

MCC programs are administered by housing finance agencies at the state and local level, and availability, credit rates, income limits, and purchase price limits vary significantly by market. Pacific Home Loans works with MCC programs across multiple licensed states where programs are active and funded.

Borrowers in California, Nevada, Arizona, Colorado, Oregon, Washington, Montana, Tennessee, and Texas should inquire about MCC availability in their specific county or metropolitan area during the pre-approval consultation. Program funding in state-administered MCC programs can be limited and may be exhausted at certain points in the year – confirming availability early in the process is advisable.

The general eligibility framework, tax credit mechanics, and refinance reissuance requirement described on this page apply broadly across most state MCC programs, though specific credit rates, income thresholds, and purchase price limits are program-specific and confirmed on a market-by-market basis.

— LAYERING WITH LOAN PROGRAMS

Combining the MCC with Other
First-Time Buyer Programs

One of the most effective aspects of the MCC is that it is designed to be layered with – not used instead of – a primary mortgage program. The MCC does not replace a loan; it supplements one by reducing the ongoing federal tax burden associated with homeownership.

MCC programs are compatible with the following mortgage structures, subject to program-specific guidelines:

Down payment assistance programs may also be layered with the MCC in certain markets, subject to program guidelines. The combination of a low down payment mortgage, down payment assistance, and an ongoing MCC tax credit can meaningfully improve both the upfront accessibility and long-term cost of homeownership for eligible first-time buyers.

— COMMON QUESTIONS

Mortgage Credit Certificate
FAQ

Have a question not answered here? Our team is available to walk through your specific scenario.

A tax deduction reduces the income on which federal tax is calculated, producing a tax benefit equal to the deduction amount multiplied by the borrower’s marginal tax rate. A tax credit reduces the actual federal tax liability dollar-for-dollar, regardless of the borrower’s tax bracket. The MCC is a tax credit – it produces a more direct and typically more valuable benefit than an equivalent deduction. Borrowers should consult a qualified tax professional for guidance specific to their tax situation.

The annual credit is calculated by multiplying the mortgage interest paid during the tax year by the program’s credit rate – commonly 20%. The federal annual cap of $2,000 applies when the credit rate exceeds 20%. For a borrower paying $40,000 in mortgage interest in a given year at a 20% credit rate, the annual credit would be $8,000 – however, the $2,000 federal cap does not apply at 20%, so the full calculated amount is available. The remaining 80% of mortgage interest may still qualify for itemized deduction treatment. The specific mechanics should be reviewed with a tax professional in the context of the borrower’s full tax situation.

In certain cases, yes – favorably. Some lenders and loan programs allow the anticipated annual MCC tax credit to be treated as additional monthly income for qualification purposes, which can increase the qualifying income calculation and expand the loan amount the borrower can support. Whether and how MCC income is treated in qualification is program-specific and confirmed during the pre-approval consultation.

MCC programs are administered by state and local housing finance agencies and vary significantly in availability, credit rates, and funding levels across Pacific Home Loans’ licensed markets. The program is active in Hawaii through HHFDC and may be available in other licensed markets. Availability for a specific state, county, and transaction is confirmed during the pre-approval process.

The original MCC becomes void upon refinancing of the assisted mortgage. To preserve the tax credit benefit, the borrower must apply for and receive a reissuance certificate from the issuing housing finance agency before or concurrent with the refinance. This is a mandatory step – the MCC benefit does not transfer automatically to the new loan. Borrowers who fail to obtain reissuance permanently forfeit the remaining MCC benefit. Any refinance of an MCC-assisted mortgage should be coordinated with the loan officer specifically to address this requirement in advance.

Federal law includes a recapture provision that may require repayment of a portion of the MCC benefit if the property is sold within nine years of purchase and the borrower’s income at the time of sale exceeds defined thresholds. The maximum recapture amount is the lesser of 50% of the gain on sale or 6.25% of the original mortgage amount. In many circumstances – particularly when the home is sold at a modest gain or the borrower’s income has not increased significantly – recapture does not apply or applies at a minimal amount. The recapture rules are complex and the applicability is highly fact-specific. Borrowers should consult a qualified tax professional for guidance before participating in an MCC program.

In many markets, yes. MCC programs are frequently designed to work in combination with state or locally administered down payment assistance programs. Eligibility for combined participation is determined by the specific requirements of each program. Pacific Home Loans confirms layering eligibility for any assistance programs applicable to a specific transaction during the pre-approval consultation.

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