Insuring the American Dream: Tax Break Ahead

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RISMEDIA, December 28, 2006-(MCT)-A new tax deduction will make homes more affordable next year by allowing home buyers to write off premiums for private and government mortgage insurance from their income.

The deduction, effective in 2007, will help families who can't afford the traditional 20% down payment for a home mortgage.

"It's not a windfall," said Randy Jeffers, managing broker for Amarillo's Coldwell Banker office. "But on the other hand, every little bit helps when buying a home."

Borrowers closing loans to purchase homes in 2007 who have annual household incomes of $100,000 or less will be able to get a low down payment mortgage and deduct the full cost of their mortgage insurance premiums on their federal tax returns.

Private mortgage insurance is a supplemental insurance policy provided by a private company and required when a customer is applying for a mortgage and making less than a 20% down payment.

Mortgage insurance typically amounts to about one-half of 1% of the mortgage amount annually, according to the Mortgage Bankers Association. The premium usually is rolled into the monthly mortgage payment.

"On a $200,000 mortgage, you may be paying $1,000 per year for PMI so the ability to deduct mortgage insurance on your income tax can be significant," said Phillis Jackson, manager of Athlan Mortgage, a branch of Network Funding.

Jeffers said first-time home buyers rarely can afford a 20% down payment.

"Quite often, they're putting down less than 5 percent," he said.

To avoid mortgage insurance, he said some buyers opt for an 80% mortgage and borrow the remaining 20% through a second loan.

"Unfortunately, those often are the loans coming up for foreclosure," Jeffers said. "A lot of folks are stretching their finances and aren't willing to sacrifice to save up for the down payment."

Minorities will benefit from the tax deduction, said Jo Ann Cruz-Perez, director of resident services for American Housing Foundation, a nonprofit corporation.

"I understand that about 33 percent of families who will benefit will be minority homeowners," she said. "This is a good opportunity for minorities-especially Latinos-to afford the American dream."

She said Hispanics tend to be about 20% below the national average for homeownership.

The American Housing Foundation has an ownership program to help qualified home buyers purchase a $110,000 home by helping provide $22,000 in down payment assistance to the buyer.

Copyright © 2006, Amarillo Globe-News, Texas.

Distributed by McClatchy-Tribune Information Services.

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