Is PMI Really Tax Deductible?
In December of 2006, the United States Congress voted to make private mortgage insurance(PMI) premiums tax deductible for the first time in 2007. They were addressing the issue of housing affordability for home-buyers. Affordable Housing is a continuing challenge in our country. Currently, the median home price in the United States is $221,000. This means that a down payment of more than $40,000 is needed to put down the traditional 20%. Georgia's median home price is almost $154,000 which still means more than $30,000. This is a real challenge for people in the low-to-moderate income bracket. Because saving a 20% down payment is not really an option for most people, borrowers are constantly looking for ways to purchase with no or low money down.
You have two options when purchasing a home and not putting the traditional 20% down:
1. An 80% first mortgage and a simultaneously closing second mortgage for the remaining sales price balance less down payment ( if any) These are often called combo loans or piggy back loans. Second mortgages often have a high rate that can either adjust or balloon. This sometimes scares home-buyers.
2. A loan with PMI. This means a monthly premium added to your mortgage payment monthly. This is a risk based pricing insurance and it can be dropped from payment amount when proper amount equity in home has accumulated either by paying down balance or by property value going up.
Here is the catch:
As with many new tax provisions, this is initially in effect for one year. This means that mortgage insurance certificates issued between January 1, 2007 and December 31, 2007 qualify. You also have to meet an income qualification to take the deduction. If your annual household income is less than $100,000, you will be able to deduct the FULL cost of the mortgage insurance premium on your federal income tax returns. Borrowers with annual household incomes of $109,000 can take advantage of a PARTIAL deduction.
This may continue after 2007 but it is not set in stone as of yet so please keep in mind when advising your clients or choosing yourself.
I am the owner of Classic City Mortgage in Athens, Georgia. I am not a tax advisor or an attorney. Please consult them regarding your particular circumstance. This is for informative purposes only.
Please feel free to contact me on this or any other mortgage needs at amy@classiccitymortgage.com
Amy Anthony- Coile, President
Classic City Mortgage, Inc
215 C- Hawthorne Park Athens, GA 30606
(706) 559-4482
Georgia Residential Mortgage Licensee 17539
Amy,
Good post, The trade-offs of doing an 80/something vs: paying PMI to avoid the higher cost of a second has definately gotten onto buyers radar recently.
Investors have been more in tune with this all along; my lender has made a practice of putting the trade offs/options in her good faith est.
80+10 = monthly pmnt of X (no PMI)
90%LTV = monthly pmnt of X (plus PMI)
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Great idea, I always do a loan comparison sheet for my clients as well showing them ALL of their options. Best of Luck to you.
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