Mortgage loan interest rates have dropped again, now hovering around the lowest seen in the U.S. in nearly 50 years.
Those cheap borrowing costs — 3.45 percent interest on 30-year loans last week, according to FreddieMac — make home-buying more affordable by reducing monthly payments. That's great news for people who are house-hunting, but near-record-low loan rates are no reason to overlook additional, valuable ways to save money on the purchase of a home.
In a January 2019 column I wrote: "In my opinion no one should buy a home without considering a mortgage credit certificate. This underutilized option, available to the majority of buyers, results in a federal tax credit worth up to $2,000 annually for every year you own the home."
The good news is that the number of mortgage credit certificates obtained by South Carolina homebuyers increased in 2019 by 40 percent.
The bad news is, the total number of credits issued was just 144, in a state where more than 91,000 homes were sold last year.
Not all of the buyers would have qualified for the credit, but a whole heck of a lot more than 144 would have. Clearly, lenders and real estate agents could be doing much more to get the word out — something that would benefit them as well, because making homes more affordable helps to sell inventory and spur loan demand.
Is there some red tape involved? Sure, but let me say this again: Get a mortgage credit certificate before you close on the purchase of a home, and you can save up to $2,000 every year you own the home.
"This option is considered one of the most useful, and most underutilized of SC Housing’s offerings," the S.C. State Housing Finance and Development Authority said.
There are home price limits, and income limits, but both are generous enough that most South Carolina households would qualify. Homes can cost up to $300,000 — half the homes sold in the state last year cost $215,000 or less. And buyer income limits vary by county and family size, but are far above what most people earn, ranging from $65,400 to $95,200 for individuals.
So, how do you get a mortgage credit certificate?
- There are two basic qualifications — not earning too much, and either not owning another residence at the time of your home purchase, or not owning one within the past three years in certain South Carolina counties including Charleston, Greenville, Lexington and Richland.
- Secure a home loan with a lender that participates in the program. Expect to pay a one-time processing fee of up to $800. The loan must be a 30-year mortgage.
- Then, each year you own the home you can claim the credit on your federal income tax return. Remember, a credit is far more valuable than a deduction. A $2,000 tax credit means you can subtract $2,000 from the amount of income tax owed to Uncle Sam.
The way the credit works is, if you have an MCC each year you can claim 50 percent of your mortgage interest payments, up to $2,000, as a federal tax credit.
February through April is the peak time for home-shopping in the Charleston area, so if you're in the market for a home make sure to learn about mortgage credit certificates.