Borrower-paid MI premiums are tax-deductible through the year 2011. Below are answers to commonly asked questions regarding the law.

Borrowers should consult their tax advisors regarding MI tax deductibility. See disclaimer note below.

FAQs

Does the bill apply to MGIC mortgage insurance?

Yes, borrower-paid MI provided by MGIC qualifies for the deduction. This includes our Monthly, One-Time MI and Split Premium plans. There are varied opinions on the deductibility of lender-paid MI as the IRS has not yet clarified the deductibility. It is recommended that borrowers consult their tax advisors regarding the amount that is deductible.

What types of mortgage loans qualify for the MI tax deduction?

Loans used for “acquisition indebtedness” — that is, money borrowed to buy, build or substantially improve a residence — are eligible, as long as the debt is secured by the same residence. This includes purchase loans and refinance loans, up to the original acquisition indebtedness. (Money borrowed against the equity in a home or when refinancing a home for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”)

When refinancing a piggyback loan originally used to acquire a property, is the original loan amount considered the sum of the two mortgages or only the primary mortgage amount without the second lien included?

The original acquisition indebtedness is considered to be the sum of the two mortgages.

Is deductibility applicable for all loan types?

There is no differentiation among loan types.

What types of properties are eligible for tax deductibility?

The deduction applies to “qualified residences,” as defined in the Internal Revenue Code. Generally, that includes the borrower’s primary residence and a nonrental second home. As with mortgage interest, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year. Investor loans are not eligible.

Who qualifies for this itemized deduction?

Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000. (Details below.)

Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. (Details below.)

The deduction is not restricted to first-time homebuyers.

Is adjusted gross income calculated before or after deductions?

Adjusted gross income is calculated before itemized deductions, including the MI deduction.

How does the MI tax deduction work?

Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.

Are borrower-paid, single premiums, which are paid up front in a lump sum, eligible for the deduction?

Yes, borrower-paid, single-premiums are eligible for the deduction under the new law. Borrowers should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.

If the single premium is financed, are both the mortgage insurance premium and the interest tax deductible?

We believe that if the loan is for acquisition indebtedness, both the interest attributable to the entire loan balance as well as the allocated portion of the mortgage insurance premium are tax deductible.

How would a premium refund issued during the tax year affect eligibility and the amount of the MI deduction?

Borrowers are only permitted to deduct that portion of their MI premium attributable to a tax year. If the MI is dropped, and a refund is paid, the amount refunded would reduce the amount of MI premium that could be attributable to that tax year and be deducted.

Note: MGIC cannot provide tax advice. Taxpayers should consult their tax advisor to ascertain if they are eligible to take this deduction. The answers to these questions are based on an interpretation of the language of the statute, the Joint Committee on Taxation’s Technical Explanation of the statutory language, and present law. The Internal Revenue Service (“IRS”) will issue guidance interpreting the new provision, and could reach different conclusions for some of the issues raised.

NEWS RELEASE 

For Press Inquiries:

Justine Saudan, Media Relations
4949 Meadows Road Suite 150
Lake Oswego, OR 97035

PACIFIC RESIDENTIAL MORTGAGE

FOR IMMEDIATE RELEASE 

PACIFIC RESIDENTIAL MORTGAGE, is pleased to announce that Michael Eiden Sr. Mortgage Banker MLO-165229, has joined our Lake Oswego Branch. Michael’s passion lies in serving the needs of others and contributing to his community. A former United States Marine, Michael’s exceptional service skills have helped businesses and individuals with their financial goals for over 14 years. As a Mortgage Banker he has made it his mission to use his planning skills to help folks obtain a mortgage properly—whether it is through a refinance or purchase of a primary or investment real estate property.  Michael takes great pride in his work and is available to serve you. We are excited to have him as a part of our team! 

About Pacific Residential Mortgage (PRM)

In May of 2004, Pacific Residential Mortgage (PRM) opened a new kind of Mortgage Company. Made up of seasoned professionals, PRM’s rapid success is based on its decision to hire only top quality loan originators with a reputation for character, integrity and quality.

 As a broker and a banker, PRM offers the highest degree of flexibility to best meet the changing needs of all clients by providing a combination of the best products, the best service and the most competitive rates available. Dreams Approved Daily®

Effective with FHA case numbers assigned on or after April 18, 2011 the annual MI premiums will increase by 25 bps. (FHA Forward Mortgages only)

The following table will give you a snapshot of the changes:

Loans > 15 Years (30yr fixed)

• ≤ 95% – Before 85 bps NOW 110 bps
• > 95% – Before 90 bps NOW 115 bps

Loans ≤ 15 years

• ≤ 90% – Before None NOW 25 bps
• >90% – Before 25 bps NOW 50 bps

This means that on a $200,000 30 year FHA loan the monthly premium will increase by approximately $42.00.

A couple of things to consider…

• There are no changes to the Up-Front Mortgage Insurance Premiums (UFMIP)
• The change is effective with FHA case numbers assigned on or after April 18, 2011
• 15 year FHA loans with LTV’s below 90% remain at -0- annual MI

Please contact me if you have any questions or need additional information.

FHA received congressional approval on August 5th to raise borrowers’ annual premiums for single-family mortgage insurance. Lawmakers gave the federal mortgage insurer enough leeway to increase the annual fee it charges borrowers three-fold, up to 1.55 percent. However, the annual premium is not going to go that high (thank god!). The annual mortgage insurance premium will increase from 0.55 percent to about 0.90 percent of the loan amount. At the same time, FHA will lower the upfront premium charged on the amount borrowed by 100 basis points from the current 2.25 percent.

Buyers should make their loan application ASAP to lenders so they can register the address and get their case number at the lower monthly premiums. This includes short sale offers. The new structure will result in a lower upfront premium but an increase in the annual premium which is paid monthly. This means monthly mortgage insurance on FHA loans will nearly double on October, 4th 2010. This also means that because it’s more expensive, you are going to lose purchasing power on Monday too.  Which means less house for your money.

If you or someone you know is looking to purchase a new home in the near future- NOW IS THE TIME to get a preapproval!  Get with your loan officer and get your FHA case number. If you aren’t working with anyone send me an email or stop by my website to get yours. Remember it has to be issued by Midnight Ocotober, 3rd 2010!

The mortgage lending landscape changes a lot.  Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers that aren’t paying in cash.

The loan you get today won’t always be the loan you get tomorrow.

Because of how frequently bank rules are changing, it can be hard for laypersons to distinguish between mortgage fact and fiction of “what’s coming next”.

Recently, we saw this with respect to FHA home loans.

January 20, 2010, the FHA issued a press release with new lending guidelines.  Specifically, it announced 3 changes that will be effective starting April 5, 2010:

1. Upfront mortgage insurance premiums increase from 1.75% to 2.25%
2. Allowable seller concession reduced from 6% to 3%
3. FICO scores of 580 or lower are subject to a minimum 10% downpayment

But, also in its official statement, the FHA announced it would ask Congress for permission to raise monthly mortgage insurance premiums.  This is where the rumors started.

Nestled on page 348 of the Budget of the United States Government, Fiscal Year 2011, in a section titled Special Topics, there is a 1-paragraph notation that details the FHA’s petition.

1. Raise monthly premiums by roughly 0.30%, or $25 per $100,000 borrowed per month
2. Lower upfront mortgage insurance premiums by 1.25%, or $1,250 per $100,000 borrowed at closing

For now, the request is neither approved nor acknowledged by Congress. It’s merely a request. And in the event that Congress does approves it, that doesn’t mean that FHA has to stand by its initial projections.

Truth is, about the only thing we know about the future of FHA lending is that, come April 5, 2010, borrowing money is going to be tougher, and more expensive. These are the facts as we know them today.

Homebuyers should plan accordingly.

The Federal Housing Administration (FHA) insures about 30 percent of new loans, and its health is vital for the housing market.  But as foreclosures have risen, the government agency has seen its losses rise and its reserves sink below the minimum level required by Congress.

According to the Mortgage Bankers Association (MBA) more than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans. In addition, some unscrupulous operators have shifted their business to the FHA after the subprime business went bust. Last week, the FHA served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.

To address the problems, the FHA announced policy changes designed to more revenue into the agency, while at the same time keeping loans available.  The changes include:

1)  Homebuyers will Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent.  FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge. Borrowers will still be able to wrap these fees into the total amount borrowed.

2)  Homebuyers will need a credit score of at least 580 to qualify. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.  It’s important to note that even thought FHA has increased the score to 580, most lenders have something called investor overlays and almost all lenders require a 620 FICO score.

3)  Another significant change will be to reduce allowable seller concessions from 6% to 3%. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

You can view the entire press release from HUD here.