of Veterans Affairs, it is commonly known as a funding fee. If it is provided by the Rural Housing Service, it is commonly known as a guarantee fee. Regardless of what it’s called, it follows all the same rules as private mortgage insurance.
Tip #60:
Make your PMI payment go away! As soon as you can, make this financial drain disappear. When your mortgage balance is 80 percent or less than the value of your home, you can make a written request to your lender to cancel the PMI premiums. How can the mortgage balance get that low? A couple of ways:
• Market conditions have improved since you bought the house. If you think they have improved enough, get a formal, written appraisal to prove it. Submit that to your lender.
• You have paid down the principal balance. You can do this by paying a little more than the regular principal payment on your mortgage. For instance, consider adding $50 or $100 per month to your payment. This will bring the principal down slowly. If you can afford a few hundred dollars per month, that will help.
• You have made a lump sum payment on the mortgage to bring it down to below 80 percent of the fair market value of the home. Combine that with the appraisal showing the increase in value and you may be able to save yourself $50 a month or more.
Tip #61:
Avoid PMI altogether. Don’t try to handle your own mortgage application when buying a home. Find a solid, reputable loan broker to help you. Not only can they help you get the best interest rates possible, they can help you avoid paying the PMI in the first place. How? You are only required to pay the PMI if your mortgage loan is for more than 80 percent of the purchase price. A good loan broker can help you get a first mortgage for 80 percent of your purchase price and second mortgage for the rest of the loan. That way you aren’t faced with any PMI costs at all. Naturally, it’s a good idea to pay something down. People who didn’t pay anything down ended up losing their homes when the mortgage industry collapsed. But by getting the first and second mortgages, if you can avoid the extra $50–$100 (or more) premium per month, you can use that money to pay your mortgage loan more quickly.
We have covered a wealth of details about taxes, interest, and insurance and learned a variety of special tips to help you address common problems. Let’s move on to tax credits we can find around the house.
Giving Yourself Credits around the House
ASIDE FROM BEING A great place to live, your home can provide you with a wealth of credits if you know how to go after them. The credits can come from a variety of sources, not just from the IRS.
Tip #62:
Look beyond the IRS for tax credits and rebates. Great places to look are your state, your city, your utility, and even your various appliance manufacturers. You may get access to rebates and refunds in addition to tax credits. Let’s start with the simplest kind of credit.
Tip #63:
State renter’s or homeowner’s credits. Some states provide some kind of credit to low-income renters and/or seniors, since their rent covers a portion of the landlord’s property taxes. For instance, California offers renters $60 (single or married filing separately) or $120 (all other statuses) (https://www.ftb.ca.gov/individuals/faq/ivr/203.shtml). Pennsylvania offers a property tax/rent rebate program worth up to $650 depending on your income, age, and disability level (http://www.revenue.pa.gov/generaltaxinformation/propertytaxrentrebateprogram/pages/default.aspx). To find out if your state offers anything similar, just Google “[state name] property tax credits,” “[state name] renter credit,” and “[state name] renter rebate.” One of those searches should get you what you want. Of course, you can always go directly to your state’s website to search that. Go to http://www.taxadmin.org/state-tax-agencies and look up state tax forms here: http://www.taxadmin.org/state-tax-forms.
Tip #64:
Before we look at what the IRS offers you, it’s important for you to find the benefits that your state, city or utilities can provide. They can provide rebates, tax credits, or special financing. The Energy.gov site is maintained by the US Secretary of Energy and his or her staff. You can look up available benefits by selecting your state. Using this as a starting point, you can see what cost reductions you have available to you before getting to the IRS tax credits. Bear in mind you need to reduce the costs you report on any IRS or state forms by any benefits you get from these sources. In other words, if something costs you $5,000 and your utility gives you a rebate of $2,000, you will only report a cost of $3,000 to the IRS. You don’t generally have to pick up the rebates as income, since you are reducing the cost of repair or improvements. Read your state’s rules to find out how they want such rebates reported on their forms.
Tip #65:
Depending on your location or your income level, you might qualify for local or federal subsidy programs that will give you grant money or low-interest loans to help pay for your alternative energy devices. The White House has made renewable energy (https://www.whitehouse.gov/the-press-office/2015/08/24/fact-sheet-president-obama-announces-new-actions-bring-renewable-energy) a major goal, so you will find money flowing to communities. In particular, seek out federal funding from the PACE (property-assessed clean energy) program (http://energy.gov/eere/slsc/property-assessed-clean-energy-programs). One of the interesting things about this is that the repayment for the loan becomes part of your property tax rather than a mortgage lien on your property. The two benefits to this are that the loan balance doesn’t affect your FICO score, and when you sell the house, the buyer continues to make the payment. So you get more cash out when you sell. You don’t have to pay off the loan. Be sure to disclose this to all potential buyers.
Tip #66:
The Nonbusiness Energy Property Credit, Form 5695, Part II (https://www.irs.gov/pub/irs-pdf/f5695.pdf). I’ve seen people work themselves into a frenzy to nab this credit. This is for adding insulation to your home or replacing windows, doors, or roof components designed to reduce heat loss or gain. While those doing those things might reduce your utility bill or improve the appearance of your home, the IRS tax credit for it is minimal. The entire lifetime credit amount is limited to $500 for all these improvements. (I have seen new windows costing more than $5,000.) By “lifetime,” Congress means that once you have used all $500 of this credit, you may never get it again. If you are only making these improvements to get the tax benefits, think again. But do look to see if your state or utility offers any rebates.
Note: This is another of those credits that expire. This was extended through December 31, 2016, as part of the Internal Revenue Code as Section 181 of the PATH Act of 2015. Please see Bonus Tip #270 for more details.
Tip #67:
The Residential Energy Property Credit, Form 5695, Part I (https://www.irs.gov/pub/irs-pdf/f5695.pdf). This is the credit worth snagging. This gives you back 30 percent of your entire expenditure on installations of solar, geothermal, or wind energy power units and power cells. As we write this, this IRC Section 25D (https://www.law.cornell.edu/uscode/text/26/25D)