What You Need to Know About the VHDA Mortgage Credit Certificate

If you’re hunting for a house in Virginia, you’ve probably heard of the Virginia Housing Development Authority or VHDA. If not, you may be missing out on valuable resources that can guide you through each step of home buying.

The VHDA provides tools that open doors to affordable and quality housing opportunities for families in Virginia. It offers one special benefit, the Mortgage Credit Certificate or MCC, that can significantly cut the tax bill for homeowners who qualify.

How the Mortgage Credit Certificate Works 

The mortgage credit certificate gives you a dollar-for-dollar credit against your federal taxes. The credit equals 20% of your annual mortgage interest. You can also take the other 80% of your mortgage interest as a tax deduction.

Now, keep in mind, there’s a difference between tax deductions and tax credits. Tax deductions reduce your taxable income which in turn lowers your tax liability. On the other hand, tax credits are subtracted directly from your total federal income tax and can reduce your tax liability even more. 

A key perk of the mortgage credit certificate is you can use it throughout the entire life of your loan as long as the home continues to be your primary residence.

Do You Qualify for the VHDA Mortgage Credit?

You must apply for the certificate with a lender and get approved by the VHDA before closing. There are several eligibility requirements you’ll have to meet to get this credit certificate. The very basic requirement is you must be a first-time home buyer in Virginia or a buyer who hasn’t owned a home in the last 3 years.

You can get around these two requirements if you buy a home that’s in a federal target area designated for economic growth in Virginia. There happen to be target locations within Fairfax County including neighborhoods in Arlington and Alexandria. If you’re searching for a home in either of these areas, be sure to check whether you qualify before you buy. 

Mortgage Credit Certificate Income Requirements

Your income and the price of the home you buy also have to be below a preset limit to qualify for the credit. Fortunately, income and home price limits vary by location. For the Washington, Arlington and Alexandria area, the income limit for a household with two or fewer people is $121,900. For households with three or more people, the income limit is $142,300. The maximum home price (for new and existing construction) in the same region is $500,000.

Drawbacks of the VHDA Mortgage Credit

There is one situation where you could run into problems after using the mortgage credit. If you sell your home within 9 years of making the purchase or experience a significant increase in income, you may get hit with federal recapture tax. Before taking the credit, you should speak with a tax professional to discuss your future earnings to decide whether the mortgage credit will ultimately benefit you.

We can walk you through the process of applying for the MCC, so you can take advantage of the tax break each year.


Interested in learning more about your mortgage options or prequalifying for a home loan?