For a second year in a row, the state is making more federal mortgage tax credits available to people with low or moderate incomes in an effort to reduce the cost of buying a home amid a more restrictive financing market.

The Hawai'i Housing Finance and Development Corp. yesterday said it's accepting applications for $20 million in credits, a record amount that's up from $15 million in credits given last year.

The tax credit, called the Mortgage Credit Certificate, was created by Congress in 1984 and has been available and administered here by the state since 1989. But until last year, the credits weren't much used or promoted by the state or participating lenders.

Darren Ueki, HHFDC finance manager, said interest in the program from lenders and consumers dramatically increased last year, in part because of better promotion and conventional interest rates that made terms for loans combined with the credit often better than discount mortgage products such as Hula Mae.

All $15 million in credits made available at the beginning of last year were used up in 12 months, versus a projected 24 months.

By comparison, a previous allotment for $7.5 million in credits was made in 2004 and about half of it expired without being used at the end of 2006. Between 1989 and 2006, about 700 homebuyers tapped the credit. Since 2006, about 300 buyers have used the credit.

"It really was an underutilized program," Ueki said.

The program works by giving homebuyers a federal income tax reduction equal to 20 percent of mortgage interest they pay every year, effectively letting buyers keep more income to qualify for a bigger mortgage.

Also, the typical itemized deduction homeowners can take for mortgage interest can be applied to 80 percent of the interest paid on the home loan.

To qualify for the mortgage tax credit, buyers must reside in the home being bought and may not have owned a home in the previous three years.

Buyers also cannot exceed income limits to qualify for the credit. For a family of three or fewer, maximum annual income by county is $92,760 on O'ahu, $87,360 on Maui, $80,160 on Kaua'i and $76,080 on the Big Island. For families with more than three people, income limits are $108,220 on O'ahu, $101,920 on Maui, $93,520 on Kaua'i and $88,760 on the Big Island.

The maximum price for homes bought under the credit program is $644,429 on O'ahu, Maui and Kaua'i, and $556,875 on the Big Island.

Another caveat is that the government may reclaim some of the credit if a participant sells their home within nine years, sells their home for a gain or if their income increases above a certain level.

The program doesn't cost the state money, but does reduce the state's ability to borrow money by issuing bonds. For every dollar in credits offered, the state must reduce its bond capacity by $4. So to offer $20 million in credits, the state's bond capacity is reduced by $80 million.