Private Mortgage Insurance is important to homebuyers because it helps them afford homes with less than 20% down on the home. Because the premiums can get costly, it can get overwhelming. You know that you can write off the interest you pay on your mortgage, but what about the PMI?
Up until recently, homeowners could deduct PMI on their taxes. In fact, you may still be able to do so today, but the circumstances may differ. The basic rules regarding how can deduct PMI are as follows:
- You must live in the home as your primary residence
- Your adjusted gross income may not exceed $100,000 if married filing jointly ($50,000 in separate)
- You must itemize your deductions
As we said above, this was all well and good until the tax reform. Because you must itemize your deductions in order to get the PMI deduction, many homeowners may miss out on the deduction this year.
The New Standard Deduction
The bigger problem this year is the amount of the new standard deduction. A married couple can now take a standard deduction of $24,000. In other words, your itemized deductions must exceed $24,000 in order to take advantage of the individual deductions.
This could mean that a majority of homeowners don’t get to itemize which means they don’t write off their interest or PMI. This could hurt a large number of homeowners that use that tax deduction to make the PMI more affordable.
Ways Around PMI
If you don’t think you’ll fall under the small percentage of homeowners that will be able to deduct PMI on their taxes, you may want to find other ways around PMI.
Here are some solutions:
- Refinance your loan – If you have an FHA loan and pay MI, refinance into a conventional loan. This is especially helpful if your home appreciated and/or you paid your principal balance down. If you owe less than 80% on your mortgage, you can get a new mortgage without PMI.
- Remove the PMI – If you have a conventional loan and your home appreciated, pay for a new appraisal. If the appraisal shows a value that is high enough to knock your LTV down below 80%, you can ask the lender to eliminate your PMI.
Paying PMI might seem like a pain and it may even get more expensive for you if you can’t itemize your deductions, but it did help you get into a home. Without 20% down, lenders take a huge risk. Most lenders won’t take that risk without the insurance backing them up, whether you are talking about FHA insurance or conventional PMI. Either way, the insurance helps you become a homeowner. You’ll have to weigh the pros and cons of not being able to write the expense off if that’s what it comes to this year.Click to See the Latest Mortgage Rates»