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Mortgage Credit Certification Program

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1. What is an MCC?

An MCC is a federal income tax credit designed to assist persons better afford individual
ownership of housing. With an MCC, the qualified homebuyer is eligible to write off a portion of
the annual interest paid on the mortgage as a special tax credit, not to exceed $2,000, during
each year that they occupy the home as their Principal Residence. The portion or amount of the
tax credit is equal to the mortgage credit rate on the MCC (for example 35%) multiplied by the
annual interest paid. This credit reduces the federal income taxes of the buyer, resulting in an
increase in the buyer’s net earnings. Increased buyer income results in increased buyer capacity
to qualify for the mortgage loan. The MCC has the potential of saving the MCC holder thousands
of dollars over the life of the loan. Please see the applicable Fact Sheet for the Mortgage Credit
Certificate Rate.

2. What is the difference between a “tax credit” and a “tax deduction”?

A “tax credit” entitles taxpayers to subtract the amount of the credit from their total federal
income tax liability, receiving a dollar for dollar savings. A “tax deduction” is subtracted from the
adjusted gross income before federal income taxes are computed. Therefore, with a deduction,
only a percentage of the amount deducted is realized in savings.

3. How does the Homebuyer realize the increase in “home-buying power”?

The homebuyer may receive the complete MCC credit savings annually at the time they file
their tax returns or monthly by adjusting his or her federal income tax withholding by filing a revised
Form W-4 with his or her employer. By taking this latter action, the number of exemptions will
increase, reducing the amount of taxes withheld and increasing the buyer’s disposable net
income.
Taxpayers who file itemized returns may take a deduction for his or her mortgage interest paid
each year, less the amount equal to the tax credit taken.
In any event, when the homebuyer files his or her taxes each year, they must fill out IRS Form 8396
and attach a copy of their MCC with his or her filed taxes.
This is not intended to be a full explanation, nor an assurance that such information will guarantee
compliance with the tax laws. We encourage the homebuyer to contact their tax advisor or their
employer to help them with the necessary tax forms and, if they so choose, to properly adjust their
tax withholding.

4. What happens if a qualified Homebuyer cannot use the entire amount of the MCC credit?

A. If the amount of the MCC credit exceeds the MCC holder’s tax liability, reduced by any other
personal credits for the tax year, the unused portion of the credit can be carried forward to the
next three tax years or until used, whichever comes first. The homebuyer will have to keep track of
the unused credit each year. The current year credit is applied first and then the oldest amount
of unused credit applied next.

5. Will a Homebuyer qualify if they are not a First-Time Homebuyer?

Yes, if they are purchasing a home in an area designated as economically distressed.

6. Can a Homebuyer apply for a MCC after they have closed on their mortgage?

No, a homebuyer must apply and be preliminarily approved for the MCC prior to closing on
their mortgage.

7. What loans types can be used with the MCC?

The Program does not place restrictions on the mortgage financing with regard to type, term
or rate. However, only first mortgages (as opposed to second mortgages) qualify. In addition,
mortgages funded with a qualified mortgage bond or a qualified veteran’s mortgage bond are
not eligible.

8. Does the Mortgage Credit work like the Earned Income Credit?

No, the mortgage credit offsets the homebuyer tax liability. If the homebuyer has little or no tax
liability the MCC would be of no benefit to the homebuyer. You can never claim more of a credit
than you have in tax liability.

9. Does a Homebuyer lose their credit if they refinance their mortgage?

In most cases, no. You can have your certificate re-issued if your current principal balance is
less than your original mortgage balance.

10. How does the Mortgage Credit Certificate work?

With a Mortgage Credit Certificate (MCC), for example, 35% of the mortgage interest is a tax
credit—a dollar-for-dollar reduction of income tax liability for the life of the loan. The remaining
65% mortgage interest continues to qualify as an itemized tax deduction for the homebuyer.
Prospective homeowners can obtain an MCC when applying for a mortgage loan at any
participating lender. The mortgage loan must be new, not the refinancing of an existing mortgage
loan. Lenders vary in their requirements for mortgage loans.

11. How do you figure the tax credit the Homebuyer can receive?

The mortgage credit can be calculated as follows: Loan amount x loan interest rate x percent
of credit allowed = amount of credit.

12. Where does a Homebuyer obtain an MCC?

A homebuyer applies for the MCC at the same time they make a formal application for a
mortgage. Lenders vary in their requirements for mortgage loan application, but generally you will
have made a purchase offer on a specific residential property and will be ready to supply credit
information, employment data, and other information to the lender. There will be a nonrefundable
fee to make application for an MCC.

13. How long does the credit certificate last?

Each year, the credit certificate will be calculated on the basis of the certificate credit rate
times the interest paid on the mortgage loan that year. The MCC will be in effect for the life of the
original mortgage loan, so long as the home remains the principal residence of the homebuyer.

14. What are the MCC requirements?

Federal, IRS, and state regulations apply to everyone who obtains an MCC. These include:
1) Cannot have had an ownership interest in a principal residence at any time in the last three
years, unless you apply for a loan in an area designated as economically distressed. In these areas
designated as economically distressed , you do not have to be a first-time homebuyer.
2) The home you buy must be located in the Eligible Loan Area and used as the homebuyer’s
principal residence after they obtain the mortgage.
3) The mortgage loan must be a new loan, not the refinancing of an existing mortgage loan or
land contract.
4) Cannot exceed the income and purchase price limits established

15. What are income and purchase price limits?

Please see the applicable Fact Sheet for these limits.

16. What kinds of properties are eligible?

An MCC can be used for either new or existing single-family homes, detached or attached
structures, consisting of not more than four connected dwelling units intended for residential
housing, each for one family, or a single unit in a condominium, or townhouse. A single unit in a
duplex, triplex, or fourplex, or an entire duplex, triplex, or fourplex can be financed, provided that
one of the units will be occupied by the Applicant and the Residence was first occupied for
residential purposes at least five years prior to origination of the mortgage loan. However, this five year
requirement does not apply to a single unit in a duplex.
If the subject property has two, three or four units and is in a Non-Targeted Area census tract, the
Lender must submit documentation verifying that the structure was first occupied at least five
years prior to the date of application. An appraisal or property profile of the subject property
showing that it was more than five years old would normally suffice as verification. Two- to four unit
properties of any age, new or existing, are eligible in Targeted Areas.
Manufactured homes are also eligible, but they must meet agency guidelines and Program
requirements. To qualify, a manufactured home must be manufactured in a factory after June 15,
1976 that is delivered to a home site in more than one section and affixed on a permanent
foundation. The dimensions of the completed dwelling shall be not less than 20 feet by 40 feet,
the roof must be sloping, and the siding and roofing must be the same as those found in site built
dwellings.
Mobile homes are allowed but must meet be permanently affixed to the ground with a poured
foundation, and taxed as real property.
The following types of properties are not eligible for the Program:
a. Rental homes
b. Cooperative housing
c. Home used as investment property
d. Recreational, vacation or “second” homes
e. Motor homes, campers and similar vehicles
Property being purchased must meet the applicable agency guidelines and be located in the
Eligible Loan Area.

17. How does a homebuyer apply for an MCC?

The homebuyer may obtain an MCC through any of the approved Lenders. For a list of
participating lenders in your purchasing area, please email Hilltop Securities at
htshousing@hilltopsecurities.com or call 214-953-4176. The homebuyer should apply for the MCC
at the same time he or she makes a formal application for a mortgage loan. The homebuyer
should have a signed purchase offer in hand to buy a house and be ready to supply credit
information, employment data and other information to the Lender.
There is no allocation of Mortgage Credit Certificates by the Lender. After an application is filed,
the Lender will arrange with the Program Administrator to reserve an allocation for an MCC
assisted mortgage loan. This reservation (MCC Commitment) will hold the MCC while the Lender
and the Program Administrator are processing the application.