Mortgage Credit Certificate

A PHFA Mortgage Credit Certificate (MCC) allows homebuyers to claim a tax credit for 50 percent (50%) of the mortgage interest paid per year, capped at $2,000 annually. It is a dollar-for-dollar reduction against your federal tax liability.

The MCC is available to qualified homebuyers in conjunction with the following PHFA first mortgage home purchase loan programs:

and, may also be combined with a Keystone Advantage Assistance loan. Due to the source of funds, an MCC cannot be used in conjunction with the Keystone Home loan.

The program that is best for you will depend on your specific circumstances, such as your credit history and amount of cash savings, as well as your individual preferences. A PHFA approved homebuyer education provider or participating lender can help you decide.

Eligibility Requirements

Applicants must meet the requirements of the applicable PHFA first mortgage program, and must also meet the requirements associated with the MCC program which are listed below:

  1. First-Time Homebuyers: The borrower and all other adults who intend to live in the home within 12 months from closing must be first-time homebuyers (have not had an ownership interest in their principal residence during the previous three years). The first-time buyer requirement does not apply if the borrower is a veteran or is purchasing in a targeted county or area. Target counties are indicated by a "T" in the listing of Purchase Price and Income limits (Appendix A: Limits - Keystone Home Loan). Please note that some non-target counties have targeted neighborhoods within them as listed in the appendix.
  2. Income: The gross annual household income for all adults that intend to occupy the home within one year from loan closing does not exceed the Keystone Home Loan Program income limit (Appendix A). All sources of income must be included, except for income received by persons under age 18 and income received by dependants enrolled in a full-time undergraduate program.
  3. Purchase Price: The purchase price of the prospective home does not exceed the Keystone Home Loan Program purchase price limit (Appendix A). This includes all costs for a complete home. It is also known as the total acquisition cost. The appraised value of land owned outright for more than two years does not need to be included.
  4. Mortgagor's Affidavit: Borrowers must complete the PHFA Mortgagor's Affidavit at the time of loan application and reaffirm it at closing, and the Recapture Tax Notice must be signed at or prior to closing.

Does the Credit Expire?

The Mortgage Credit Certificate will expire if the home is sold or is no longer used as the borrower's primary residence. If the borrower maintains ownership and continues to occupy the property, they will be eligible to claim the credit for the life of the loan. If the loan is refinanced, the MCC may be eligible for reissue with the approval of PHFA.

How much of a Tax Credit can be claimed?

The size of the annual tax credit will be 50 percent (50%) of the annual interest paid on the mortgage loan (up to a maximum of $2,000). The credit cannot be greater than the borrower's annual federal income tax liability, after all other credits and deductions have been taken into account. In other words, the borrower will be able to take up to 50 percent (50%) of the interest paid as a credit and the balance as a standard deduction on schedule A of their tax return.

Example:
  $125,000 (mortgage amount)
x 4.000 % (mortgage interest rate)
x 50 % (MCC percentage)
= $2,500   (capped annually at $2,000 maximum eligible tax credit amount)
In this example, the tax credit will be the maximum of $2,000 and the remaining $3,000 will be a schedule A deduction per the IRS tax code. Up to 50% of the annual interest paid may be taken as an annual tax credit for the life of the loan.

How to Apply

If you meet the conditions above, contact a PHFA participating lender to start your mortgage application. PHFA also offers homebuyers the opportunity to receive homebuyer counseling and education free of charge through one of its approved counseling agencies. We strongly encourage you to seek the assistance of a counselor before you sign a sales agreement, especially if you are a first-time buyer. Any borrower with a FICO credit score lower than 680 is required to complete a course prior to closing on their loan.

If your lender of choice is not included on PHFA's participating lender list, you may direct them to the instructions on how to apply for PHFA approval so that they can offer PHFA mortgage financing programs.