TAXES: How to Get Your PMI Deduction

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.

MORTGAGE & FINANCE: Fee increases are making FHA mortgages more expensive

WASHINGTON — If you want to buy a house with minimal cash by using an FHA-insured mortgage, here's some sobering news: Because of an ongoing series of fee increases and underwriting tweaks, those mortgages are getting steadily more expensive and may not work for you.

The Federal Housing Administration is the largest source of low-down-payment mortgage money in the country. Its minimum down is just 3.5%, compared with 5% to 20% or more from conventional, non-government sources. For decades, FHA financing has made homeownership possible for first-time buyers with modest incomes and credit history blemishes.

But in the wake of losses tied to bad loans insured during the housing bust years, the FHA has been raising its loan insurance fees and backing more loans to applicants with higher credit scores. With the latest increases, things have gotten to the point where some lenders wonder whether the agency is trying to move away from its traditional customers.

Dennis C. Smith, broker and co-owner of Stratis Financial Corp. in Huntington Beach, is blunt: "I think FHA is putting itself out of business with the moves they've made in the past couple of years."

Although they wouldn't agree with that assessment, the FHA's top officials readily admit that their priority is not increasing market share but protecting the agency's multibillion-dollar insurance fund reserves and cutting losses.

Starting April 1, the FHA's annual mortgage insurance premiums for most new loans will jump

FINANCE: Lenders react to FHA mortgage insurance changes

Not only will FHA Mortgage Insurance Premiums be increasing 10 to 15 basis points, but they will also become permanent, creating room for alarm among lenders who fear lower-income homeowners will be squeezed out of the market.

U.S. Federal Housing Commissioner Carol Galante announced the changes in late January.

Many are arguing that, for a loan designed to help lower-income families and first time homebuyers, this increase in premiums is unjust, according to a recent press release.

"If Commissioner Galante follows through with other items, such as permanent mortgage insurance, low income households will qualify for less," said Chris Apodaca, a California mortgage banker.

And reducing market share is partially a goal of the increases, according to the FHA. It's role, post-crisis, is huge. Accoring toan article in The Wall Street Journal, economists at Moody's Analytics estimate that home prices, already down around 30% from their peak, would have fallen by an additional 25% without this government backing.

Therefore, it will be difficult to claw-back from the role the government plays in today's housing finance.

"FHA was never meant to be as mainstream as it is today," Apodaca added.

Seattle’s inventory of homes for sale has been dwindling for the past year. However, it seems that sellers are still in hibernation, despite the lack of competition from other sellers. This lack of inventory continues to leave buyers frustrated.

Last month, a 1.39-month supply of housing was reported in Seattle's King County. Analysts suggest a 5-to-6 month supply indicates a "balanced market."

"60% of homes being listed in the major job centers of the greater Seattle area are selling in one month or less," reported Seattle Pi.

While some sellers may be waiting for the market to come back, the Seattle Pi article points out, "the market is back."

Economists are saying that housing will become a positive contributor to the U.S. economy in 2013, instead of weighing against economic growth.

According to an article in The Columbian, this statement is backed up by most measurements of the housing sector, including home starts, sales and rising home prices. 

"The current forecast is for 5 million existing homes and 500,000 new single-family (housing starts). That's a pretty healthy growth in existing sales of about 8.5 percent," said Danielle Hale,