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First-time buyers · IRS Form 8396 and Fannie MaeMortgage credit certificate (MCC): the tax credit and how it helps a buyer qualify

States and municipalities can issue mortgage credit certificates (MCCs) that let an eligible first-time homebuyer claim a federal tax credit for part of the mortgage interest on their main home – usually 20% to 25%, according to Fannie Mae's Selling Guide (B3-3.4-10). On the tax side (IRS Form 8396), only an MCC issued by a state or local governmental unit or agency under a qualified program counts – certificates from FHA, VA or the Farmers Home Administration don't – and the home must be the owner's main home in the issuer's jurisdiction. The certificate credit rate is between 10% and 50%; above 20%, the credit can't exceed $2,000 a year, and anything over that cap can't be carried forward. Otherwise unused credit carries forward up to three years. A borrower who itemizes reduces the mortgage interest deduction by the credit. Refinancing keeps the credit only if the MCC is reissued under strict conditions, and selling the home within nine years may trigger recapture on Form 8828. For qualifying, Fannie Mae has the lender add the maximum possible MCC benefit to the borrower's income rather than reduce the payment: (mortgage amount × note rate × MCC percentage) ÷ 12 – a $100,000 loan at 7.5% with a 20% MCC adds $125 a month. The lender needs a copy of the MCC and its calculation; no income history is required.

The tax credit (Form 8396)

  1. Who issues it

    A state or local governmental unit or agency – not FHA, VA or the Farmers Home Administration.

  2. Rate

    10%–50% of the interest on the certified loan; above 20%, at most $2,000 a year.

  3. Carryforward

    Unused credit up to 3 years – but not the part above the $2,000 cap.

  4. Itemizers

    The mortgage interest deduction is reduced by the credit.

  5. Selling within 9 years

    Some credit may have to be repaid (Form 8828).

Qualifying income (Fannie Mae B3-3.4-10)

  1. Formula

    (Mortgage amount × note rate × MCC %) ÷ 12, added to income.

  2. Example

    $100,000 × 7.5% × 20% = $1,500 a year → $125 a month.

  3. Documents

    A copy of the MCC and the lender's calculation; no history required.

What the TC can do

  • Ask early whether the buyer is using an MCC program, and ask the program about its approval steps.
  • Make sure the MCC is issued before closing and goes into the lender's file.
  • Tell sellers who used an MCC that a sale within nine years may mean recapture – their tax pro should look.

Questions buyers ask

How much is the mortgage credit certificate tax credit?

The certificate credit rate is 10% to 50% of the mortgage interest on the certified loan; if the rate is above 20%, the credit can't exceed $2,000 a year (IRS Form 8396).

Does an MCC help me qualify for a mortgage?

Yes. Fannie Mae has the lender add the maximum MCC benefit to your income: loan amount × note rate × MCC percentage ÷ 12 (Selling Guide B3-3.4-10).

What happens if I sell a home bought with an MCC?

If you sell within nine years, you may have to recapture part of the credit on Form 8828.

Related guides

Add the MCC approval as a document on the deal in ClosingCode and set its deadline as a task with an owner and due date.

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Sources: Fannie Mae Selling Guide B3-3.4-10, Mortgage Credit Certificates (March 4, 2026), selling-guide.fanniemae.com; IRS Form 8396, Mortgage Interest Credit (2025), with instructions, irs.gov – both read October 26, 2026.

General information, not tax or financial advice. The MCC program, the lender and the buyer's tax professional decide. ClosingCode is software; it is not a lender or tax preparer. This guide is not a substitute for the advice or services of an attorney.