What Is a Mortgage Credit Certificate (MCC) in Texas?

On a $300,000 loan, a 20% certificate can take close to $3,900 off your federal tax bill in the first year, and you don't have to itemize to claim it. You can't add one after the loan closes, so this is a question for your first call with a lender.

An MCC is a certificate from a housing finance agency. It isn't a loan, and it doesn't change the interest rate on your note. It states a credit rate and a certified loan amount, and each year you multiply the interest paid on that loan by the rate and subtract the result from your federal income tax. Federal law lets state and local housing finance agencies set the rate anywhere from 10% to 50%.

The difference between a tax credit and a tax deduction is the whole appeal. A deduction only lowers your taxable income, so in the 12% bracket $1,000 of it saves $120. A credit of the same size saves the full amount.

With the 2026 standard deduction at $32,200 for married couples, itemizing often doesn't win, and then the mortgage interest deduction does nothing for you. The MCC works either way.

Itemizers get both, but they reduce their Schedule A deduction by the credit. On the $300,000 loan in the next table, that means deducting about $15,520 of the interest and claiming the other $3,880 as a credit.

These assume a 30-year fixed loan at an illustrative 6.5%, not a quote.

Interest falls slowly in the early years, so the credit barely moves for the first decade, and ten years of it on the $300,000 loan adds up to roughly $36,000 at TDHCA's rate. Try your own loan size in the mortgage calculator or TSAHC's MCC calculator.

Your tax bill sets the real limit

The credit is nonrefundable. It can take your federal tax to zero, but it won't come back as a refund. Take a single buyer earning $34,000 with a $180,000 loan. After the standard deduction they'd owe about $1,900 in income tax, which is a few hundred dollars less than the credit at TDHCA's rate, so that leftover goes unused this year.

You can carry that forward for up to three years, which only helps if your tax bill later grows past that year's credit. Other credits shrink the room too, so if you claim the child tax credit, have a tax preparer run both before you count on the full number.

Honestly, for most buyers in this rate environment who are planning to stay at their house, we would say yes. Any large loan sizes can make up a huge portion of credit on their taxes to reduce their tax bill while also using DPA to cover their upfront fees. It is a weaker deal in these cases:

• Your tax bill is small. A credit you can't use is worth nothing, and carryforward has a three-year clock.
• The paired loan costs more. TDHCA's own rate notice shows rates climbing as down payment assistance grows, so ask for the same loan priced with and without it.
• You may sell soon after a big raise. That's the recapture setup covered below.

Fannie Mae's Selling Guide will let lenders add the credit of this amount from their taxes to the monthly income when figuring out DTI. This will add roughly $320 a month on a $300,000 loan. Ask your loan officer if the program is allowed to do it this way on FHA, VA, and conventional DPA loans.

You can also file a new Form W-4 with your employer to lower your federal income tax withheld, which puts the money in each paycheck toward your monthly mortgage payment. Leave enough withholding to cover the rest of your bill.

A mortgage credit certificate Texas buyers can use comes from one of two statewide issuers, and the biggest difference between them is whether you get to shop for your own first mortgage. The TDHCA Texas Mortgage Credit Certificate comes as a standalone or combined with assistance. TSAHC discontinued its standalone indefinitely, so its MCC only comes with its own first lien.

Terms are from TDHCA's November 2026 program matrix and TSAHC's rate page.

Above on the table that's shown is the standalone option, and it's the only statewide route where a loan outside the program can carry the certificate. TDHCA will not put a first lien from a bond issuer or FHA 203(k)s, as well as federal law barring an MCC on bond-financed loans.

What an MCC costs in Texas

Both national DPA loans, like Chenoa, or state-funded loans, like the ones listed above, have different issuance fees and varying fee schedules. TDHCA waives the issuance fees for military veterans and TSAHC waives it for Homes for Texas Heroes. Regular fees apply for all others.

Within South Texas Lending and Neighborhood Loans, our fees for MCC issuers match the table above and also match state agency websites. STX Lending does all of the above combos.

Most national guides say an MCC tops out at $2,000 a year, and that's only half the rule. The IRS applies the limit "if the certificate credit rate is higher than 20%."

TDHCA's rate sits right at that line without crossing it, and TSAHC's is under it. TDHCA's own brochure shows a $2,487 credit on a $200,000 loan at 6.25%.

So on a bigger Texas loan, your federal tax liability is the ceiling and not a flat $2,000. If you see a 40% Texas rate online, it's old; that was TSAHC's rate in 2013.

Federal rules set the base:

• First-time homebuyer. You haven't had an ownership interest in a principal residence in the last three years, the same test behind most first-time buyer programs. Your lender backs that up with tax transcripts or signed tax returns.
• Veterans and targeted areas. The three-year rule is waived for a qualified veteran with a DD-214 who hasn't already used that exemption on a bond loan, and for a home in a qualified targeted census tract.
• Primary residence. You move in within 60 days of closing. Investment properties and second homes are out.

Income limits and purchase price limits

Limits vary by county and household size. Household income counts everyone who'll live in the home and sign the deed of trust, so a non-purchasing spouse's paycheck counts even though that spouse isn't on the loan. Self-employed income adds depreciation back. Income is tested only when you apply, so a raise after closing doesn't cost you the credit.

These are TDHCA's limits for FHA, VA and USDA loans outside targeted tracts, effective July 13, 2026. Targeted tracts run higher, and some conventional loans run lower. TSAHC's county tool runs nearly the same.

1. Find a participating lender first. You can't apply through the IRS, and TDHCA says plainly that it doesn't take an MCC application directly from buyers.
2. Take the homebuyer course. Both issuers require it.
3. Have your loan officer reserve the MCC. That happens before closing, and TSAHC wants its pre-closing package at least five days ahead. A TDHCA reservation doesn't follow you if you switch lenders.
4. Sign the program documents at closing. These include the application, affidavits, and notice of potential recapture. The closing docs on your loan will list the program fees along with your other closing costs.
5. Watch for the certificate. TDHCA processes it after closing and mails it to your new home.

File IRS Form 8396 with your personal taxes or 1040s every year you go to claim the MCC credit. If it asks for your issuer, the mortgage credit certificate identification number, and interest you paid, they will come off Form 1098. That is normally issued by the mortgage servicer. The credit normally lands on Schedule 3, line 6. If your loan is larger than the certified amount, only the share that we can count goes towards the share of interest.

You owe recapture tax only when all three of these line up: you sell within nine years, you sell at a gain, and your income has passed an adjusted limit. That limit starts at the program's figure when you bought and rises 5% a year. Miss any one and you owe nothing. The FDIC's lending guide calls it a low risk.

When it does hit, federal law caps it at 6.25% of your loan on a schedule that peaks in year five, or half your gain if that's smaller. Here's that schedule on the same $300,000 loan, next to the credit claimed.

With a 20% certificate, worst case, it hands back about what you claimed through year 5 and then you're ahead of that thereafter. On a 15% certificate, however, you can owe more than it gave you in some years so it's really important to look at your break-even point.

Due to the increased income rule after taking the MCC, the full amount also takes modified adjusted gross income at least $5,000 over that limit per Form 8828. If you're selling at a loss or a death, that also avoids the recapture.

Moving out ends the MCC benefit. If the home stops being your principal residence, including when you turn it into a rental, you can't claim it anymore.

A refinance ends it too unless the issuer reissues the certificate. Both TDHCA and TSAHC do that for loans that meet their rules, but the reissued MCC can't raise your credit rate, cover more than your remaining certified balance, or produce a bigger credit than the original would have. Cash-out money earns nothing. Ask for the reissue before you close the new loan, since Fannie Mae wants confirmation from the issuer by then.