sam1000
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I'm calculating a buy vs rent scenario. I live in California. My marginal income tax bracket for FED is 28% and State is 9.2% so a total of 37.2%.
I pay $1320/month in rent right now for my 1 bedroom, 680sqft and the RE market here is coming down so I'm wondering if it makes sense to buy in the next 6 months or so if it's going to cost me only a little more to buy a 2 bedroom condo. I have $25,000 right now in cash for a downpayment.
Here is the scenario (figures are from the calculator at quickenloans): Purchase price of $325,000 for a 2 bd/1ba, 1200sqft condo on a 30yr fixed at 5.85% w/25k down:
PI = $1,775
T = 340
I = 135 (since down is less than 20%)
HOA = 240
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Total PITI + HOA = 2490
Savings from deduction on Federal + State: $570
Net cost: $2490 - 570 = $1,920 which is about $600/mo. more than my rent right now but this is of course to OWN and I'm insulated from the 10%/yr rent increases that have been going on around this area 
I had 2 questions:
Is mortgage interest/property taxes fully deductible on my CA state return?
I usually itemize on my 1040 since I deduct CA state taxes which is greater than the standard deduction. If I deduct CA state taxes AND mortgage interest/property taxes it would be a HUGE itemized deduction. Would I be hit by the AMT in this case? I'm single and don't have any other deductions for dependents.
Thanks for any help/insight 
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Mon Nov 06, 2006 12:53 am |
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sam1000
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Another quick question  Is it beneficial to buy the PMI upfront and roll it into the mortgage as Suze Orman suggests?
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Mon Nov 06, 2006 1:02 am |
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xboxundone
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quote:
Originally posted by coaster
10% a year increases in rent? Ouch!! 
I can't answer about CA taxes, but yes, that's all deductible on your federal return. As for the AMT, maybe you want to get a copy of TurboTax and just what-if the numbers. Buying PMI upfront? Why? Don't you ever hope to have more than 20% equity?
Make sure you have adequate cash flow also for all the usual improvements, purchases and expenses that pop up after buying a home.
Yea i dont understand why you would buy PMI upfront.... as at some point you would hope to get 20% in equity.
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Mon Nov 06, 2006 3:41 am |
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sam1000
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yeah, thanks guys.
Actually, my $325,000 figure is optimistic because those condos are currently listed for $380 or so and I'm expecting the price to drop in the near future  Nobody has 20% down here in California, that is just difficult for a 30 yr old to have that much in the bank.
I don't know about the validity of paying PMI upfront but Suze Orman says it's the way to do it if you have less than 20% down. There is a video on PMI's website with Suze explaining it:
http://www.pmigroup.com/
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Mon Nov 06, 2006 4:17 am |
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sam1000
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After researching this a bit, Suze may have a valid point. Annual PMI premiums are 0.5% of the original loan value vs upfront PMI costs are 1.5% of loan value. So let's say starting with 10% down the period to reach 20% equity condition is around 5 yrs or so...
On a $500,000 loan:
5 yrs of monthly PMI = $12,500
Upfront PMI = $7500
I'll assume the interest due to financing on upfront cancels out the tax deductibility of upfront so its a wash.
Of course, this doesn't take into account appreciation but I would think the cost of a refinance just to get rid of PMI would negate any financial advantages, not to mention that a refinance in the future may not be practical due to higher interest rates.
Opinions?
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Mon Nov 06, 2006 11:27 pm |
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