from Tim Burrell: Realtors have been trained to try to avoid Mortgage Insurance, frequently called PMI (for Private Mortgage Insurance), MIP (for Mortgage Insurance Premium) or MI (for Mortgage Insurance).  It is the insurance a lender requires a buyer to purchase when the amount of the loan is more than 80% of the value of the house.   The reason for the insurance requirement is that it reduces the lender's risk that the buyer will not make the payments, as the insurance steps in if the buyer defaults on the payments.   Loans of 80% or less do not need that insurance, as it is less likely that the borrower will walk away from the loan, and a better chance for the lender to get their money back in the event they need to foreclose.

The reason we avoided it is that the payment was not deductible from your federal income taxes.  If we structured a purchase so that you had an 80% first loan, and a 10% to 20% second loan, there was no Mortgage Insurance as the first loan was only 80% of the value of the house.  Then, the interest on the first and second loans was deductible.

There has been a change in the laws that allows Mortgage Insurance to be dedcutible on homes purchased this year.  Those who predict Congress' behavior believe that law will be extended for next year, and for following years.  However, it does apply for homes purchased now.

So, if you have an opportunity to purchase a home with a loan that is over 80% of the value of the home, and you are working hard to avoid the Mortgage Insurance, you do not have to work so hard if you are buying it in 2007.  As always, consult your tax advisor before you sign anything concerning financing, as the taxing authorities have a nasty habit of having complex regulations, and changing those regulations frequently.