Programs like My Community and Home Possible, make home buying affordable for the First Time Home Buyer (FTHB). But they often offer (1) one loan at 100% financing with Mortgage Insurance (MI).
"But I don't want to pay mortgage insurance!" Says the prospective home owner
No problem! We'll structure an 80% 1st and carry a 20% 2nd. Problem solved...NO MI.
Well times have changed and Mortgage Insurance isn't such a bad thing any more. With some high LTV 2nds wading in the distance, MI is an excellent alternative. And Congress Legislation has made MI a bit more appealing by making it Tax Deductible! And let's not forget that programs like your My Community Mortgage and Home Possible offer Reduced MI Rates!
FIRST, let's discuss some limitations...
- Tax Deductibility applies to mortgages closed in 2007
- The annual household income cannot exceed $100,000
- This is temporary. The current legislation must be extended to remain in effect for 2008 and beyond
- You must itemize deductions in order to qualify
Still confused and want to learn more? Here are some answers to some Frequently Asked Questions.
1. What is the most basic explanation of the change in the tax law?
Mortgage Insurance premiums paid (or accrued) for taxpayers on qualified residences will be treated as interest and will therefore be tax deductible.
2. What mortgages will be eligible?
Mortgage loans closed from January 1, 2007 through December 31, 2007, unless the statute is extended beyond the current tax year (most likely will be extended).
3. Are only first-time homebuyers eligible for a tax deduction?
No, any borrower who is a taxpayer is eligible. Whether they will actually have a deduction available to them depends on:
When they closed their mortgage
The type of property
Their adjusted gross income
Whether or not they itemize their deductions
4. What is a “qualified residence”?
The term “qualified residence” means the principal residence of the taxpayer and one other residence of the taxpayer that is selected by the taxpayer for the taxable year and that is used by the taxpayer as a residence
That would mean, for example, a primary residence and one second home; not a property financed or owned by the borrower solely as an investment property.
5. How much can a taxpayer make and still get the deduction?
It is based on their adjusted gross income (AGI), not their total income.
The maximum AGI to be able to deduct the premium in full is $100,000 (or $50,000 for a married taxpayer filing an individual return).
6. What happens if the AGI is more than $100K?
The amount that may be treated as tax deductible interest is reduced 10% for each $1000 until the amount becomes zero at $110,000.
7. Does this only apply to purchases?
No, it also applies to refinances.
8. Does the deduction apply to borrower AND lender paid Mortgage Insurance?
No, only borrower paid mortgage insurance. To qualify for the tax deduction, the borrower must be making the MI Payment.
9. How will the borrower get the necessary information for tax filing purposes?
A statement, such as the one detailing mortgage interest paid during the year, will be sent to the borrower by the mortgage servicer by no later than January 31st of the following year.
Disclaimer: I am NOT a licensed Tax Professional. I am a Mortgage Originator providing you with educated insights into Mortgage Insurance and it's Tax Deductibility through guided research. Please contact your Tax Professional to verify this information. If you do not currently have a Tax Professional, I can refer one to you.
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