PMI (Principal Mortgage Insurance)

February 12, 2009
Matt Isleib

 

Just to refresh everyone. PMI or (principal mortgage insurance) is required when you are purchasing a home and are receiving conventional financing or FHA financing and your down payment is less than 20%. In fact if you are putting down more than 20% you should seek conventional financing as FHA requires PMI at any LTV or loan to value.

 

The same holds true for refinances as well. If you are refinancing and have less than 20% equity in your home you will have PMI. If you have more than 20% you will be looking for conventional financing and not FHA.

 

In past years PMI was never tax deductable, which is why a lot of people looked to “piggy back” mortgages to finance purchases or refinances that did not have a lot of equity. They would use a first mortgage at 80% loan to value and seek a second mortgage to make up the difference. Also they are referred to as 80/10/10’s or 80/15/5’s meaning an 80% first mortgage 10% second mortgage and 10% down payment or equity. Same scenario holds true for the 80/15/5.

 

Federal Law in recent years has changed that. They have allowed PMI to be tax deductable. In fact it was just extended through 2010 and has been in effect for transactions that closed from 2007-2010. Federal law allows borrowers who have up to $100,000 in adjusted gross income to deduct 100% of their PMI premium. Borrowers with adjusted gross income between $100,000 and $109,000, their deductions are allowed to be phased out in 10% increments.

 

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