Because states have better credit than people do, they can borrow money at low rates. Under Mortgage Credit Certificate (MCC) programs, states lend money to first-time buyers and low-income buyers (usually) at below-market rates (but at rates that cover the interest cost of floating bond issues) and with little down (say 1% to 5%).
MCC’s allow you to borrow money and to write off a portion of the interest, up to 20%, as a tax credit. The remaining interest deduction is just a write off.
For example, suppose your interest cost for a year is $5,000 and that 20% can be used as a tax credit. On your federal taxes, you would deduct $4,000 as an itemized expense, and you would deduct $1,000 (20% of $5,000) from your tax bill. See a tax pro for details.
Speak with local lenders to see if MCC financing is now available for you as a home buyer. Because funding is limited, these programs often run out of money quickly.