Mark Bergman

The state program allows buyers to claim a tax credit equal to 20 percent of their annual mortgage interest for the life of the loan -- money applied against federal income taxes.

The state says it is enacting the program to boost the ailing housing and construction markets.

"The best way to jump-start the housing market is to encourage home purchases by first-time home buyers," Gov. David Paterson said in a statement, adding that the credit "will help stimulate the state's economy."

The tax benefit, officially called the New York State Mortgage Credit Certificate, comes as the federal government offers first-time buyers $8,000 off their taxes -- a program Realtors say is already drawing a stream of buyers who otherwise might wait out the recession.

But the state notes that the federal program is set to expire at the end of November, while this new credit has no such expiration date.

The state program, though, comes with income limitations that limit who can participate. In most of the Capital Region, combined annual income for households containing more than three people cannot exceed $85,215.

Existing homeowners are out of luck -- even if they're in their first home. The program only applies to new loans, with applications available at participating lenders by early September.

Only fixed-rate mortgages are eligible. And participants will need to keep the house as their primary residence, and they may not want to refinance.

"If you refinance, you lose this," said Philip Lentz, spokesman for the State of New York Mortgage Agency, which will administer the certificate program.

By the state's estimate, a homeowner with a 30-year, $150,000 mortgage will save about $1,500 annually in the early part of a mortgage and about $31,000 overall. (The amount of interest paid typically declines in the later years of a loan.)

Homeowners can already use mortgage interest as a tax deduction. And participants in the program can continue to do so -- for the 80 percent of mortgage interest that isn't included in the tax credit.

The financing mechanism for the program is complex, and is made possible by an Internal Revenue Service rule that allows states to trade their bonding authority for the program's tax credits.

That means the program will not impact the state's budget.

"This is a national program that's been on the books for 20 years," Lentz said. "This is a tool that we never took advantage of before."

The real estate and construction industries have been pushing the state Legislature to adopt a buyer credit that's similar to the federal program.

But to their frustration, lawmakers have so far refused to do so.

But industry leaders on Monday cheered the adoption of the mortgage-based credit, predicting it will entice many buyers who may have been hesitant to buy before the end of the recession.

"I really think it's going to get some people off the fence," said Philip LaRocque, vice president of the New York State Builders Association. "The numbers are pretty phenomenal."

The hope is that new home buyers will find the state credit too enticing to pass up, especially when coupled with the federal $8,000 credit.

But buyers will only have a three-month window to participate in both programs -- forcing folks to secure a loan when the credit becomes available in September, find a home, and close on the property before the Nov. 31 federal deadline.

That will make for a busy period for some Realtors -- a problem most will be happy to accept.

Chris Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com.