Home prices on Chicago’s Near North Side are back to the Peak levels of 2005-2006, at a sustainable pace. The purchase mortgage rates rose in 2013, and are expected to rise in 2014 as well. Homes values are expected to continue to rise this year too. This chart offers a look at Purchasing Power. If you want to see what your money will buy, please give me a call! Seize the day – seize the opportunities!
Deducting PMI premiums can save you hundreds of dollars. Here’s what you need to know to get the deduction.
Do You Qualify for the Deduction?
Just because you have PMI premiums doesn’t mean you can deduct them. Here’s what qualifies you:
- You got your loan in 2007 or later.
- Your mortgage is for your primary residence or a second home that’s not a rental property.
- Your adjusted gross income is no more than $109,000. The deduction begins to phase out once your adjusted gross income (AGI) exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of more than $109,000 ($54,500 for married filing separately).
How to File for the PMI Deduction
You’ll have to itemize and use Schedule A.
If you make no more than $100,000 a year, put the amount of insurance premiums you paid last year on Line 13. Don’t include pre-paid premiums for this year. You’re doing taxes based on last year’s income and expenses, so this year’s premiums don’t count even if you pre-paid them last year. (More about deducting prepaid and upfront mortgage insurance here.)
If your adjusted gross income is between $100,000 and $109,000, use the worksheet included with Schedule A to figure out how much you get to deduct.
How Much Can You Save?
It depends on how much you’re paying. A good rule of thumb industry experts use: You’ll pay $50 a month in premiums for every $100,000 of financing. Keep in mind, though, that the amount of the down payment, type of loan, and lender requirements can all affect your actual cost.
For example, if you put 5% down on a $200,000 house, you’ll pay monthly PMI premiums of about $125. Increase your down payment to 10%, and you’ll pay less than $80 a month.
So how does this affect your tax bill? Let’s say your adjusted gross income is $100,000. You bought a $200,000 house in 2012, put down 5%, and paid $1,500 in PMI premiums ($125 times 12 months). The deduction for PMI cuts your taxable income by $1,500. If you’re in the 15% tax bracket, you save $225 on your tax bill ($1,500 x 15%), and if you are in the 25% tax bracket, you save $375 ($1,500 x 25%).
The Best Savings of All: Canceling Your PMI
Although the tax deduction is nice — at least while it lasts — getting rid of PMI altogether is even nicer.
You can cancel your PMI when you have 20% equity in your home. Lenders are required to automatically cancel it once you have 22% equity. If you think you’re at that threshold, find out more about canceling your PMI.
Get more tax tips with our complete Home Owner’s Guide to Taxes.
This article provides general information about tax laws and consequences, but shouldn’t be relied on as tax or legal advice applicable to particular transactions or circumstances. Consult a tax pro for such advice; tax laws may vary by jurisdiction.
Three good reasons to warm up to a refinance this spring.
Low interest rates and new loan programs abound this spring, so if you assumed your refinancing and mortgage options were dismal, you’ll be surprised by these three offerings.
1. Refinance with new FHA fees
In a nutshell: FHA raised insurance premiums for new borrowers, while lowering fees for some existing customers who refinance, making comparison shopping with private mortgage insurance worthwhile. Mortgage insurance covers the lender against losses caused when borrowers stop making payments.
The details: FHA’s new insurance premium rates include a great deal for existing FHA borrowers — you can refinance by paying a miniscule .01% upfront fee and an annual premium of just .55% starting June 11.
The catch: The deal is only for home owners who got their FHA mortgage on or before May 31, 2009.
The latest FHA deal for new FHA customers buying homes isn’t nearly as sweet. You’ll pay a whopping 1.75% upfront fee and an annual premium of 1.25% — more if your loan is more than $625,000. For a $200,000 loan, that’s $3,500 for the upfront premium payment and $2,500 for the annual premium.
To shop the FHA deal against private mortgage insurance, see how much you’d pay for your specific loan and location using calculators from such sources as MGIC, Radian, or Genworth Financial. Use the calculators to check how your payment would change if you have a smaller or larger down payment.
Private mortgage insurance is based on the size of your down payment (5% is typically the minimum).
2. Refinance underwater mortgage
In a nutshell: If you owe more than your home is worth, you may finally be able to refinance into a lower rate thanks to the government’s HARP refinancing program.
The details: You can take advantage of historically low interest rates by using the latest version of the Home Affordable Refinance Program, which removed a previous cap on how far below your mortgage your home value can be.
The HARP program even works if you’ve been hit by the economic double-whammy of a falling family income and a falling home price. You qualify for a HARP refinance if:
- You have income coming in.
- You’ve made your mortgage payments on time every month for the past six months and have no more than one late payment in the past year.
The catch: Banks can layer their own tougher rules on top of the HARP requirements, and they’re not obligated to let you use the program to refinance your existing loan.
3. Refinance rental properties
In a nutshell: Some real estate investors have new loan options for the first time in years.
The details: In recent years, small landlords like me have had a tough time finding a bank to finance more rental property purchases. Once you had more than four rental property loans, Fannie Mae and Freddie Mac were no longer willing to guarantee your loans, even when your credit scores were top-notch and the property was able to turn a profit from day one of ownership.
Now, some banks participating in the HARP program are taking applications from landlords with multiple properties and lots of mortgages. HSBC recently agreed to look at a mortgage on a property I own in Baltimore. My current interest rate there is over 7% and if I get the HARP refinance it will fall to 4.6%.
It’s too soon to say whether the banks will actually fund me or any other landlord who wants to refinance.
- Only Fannie Mae has made this change. (It’ll purchase up to 10 loans from any one investor.) Freddie Mac is still limiting single-family landlords to four loans.
- Most banks discount your rental income by 25% when making investor loans, which adds up when you have multiple properties.
But, the fact that banks are accepting applications from rental property owners is a sign the credit spigot may be reopening for creditworthy real estate investors.
Are you shopping for a refinance or a mortgage to purchase a home? What’s your experience been like?