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 Using a mortgage interest tax deduction
  Pros and cons of jumbo loans
By the EchoBay Loans Expert
 Using a mortgage interest tax deduction
Dear EchoBay Expert: The rent on my apartment is $925 per month and I'm thinking of purchasing a home to save money by writing off my mortgage expense on my income taxes. Is a mortgage interest tax deduction enough of a reason for me to buy a house?

Dear Loyal Reader: In short, no. You must keep in mind there are other expenses involved in owning a home besides just the payment. Along with principal and interest, you will also owe property taxes, homeowners insurance and maintenance and upkeep.

You could also have to pay PMI (private mortgage insurance) and homeowners association dues. Many people feel that they are throwing away their money by renting and could save every month if they owned a home or at the very least would be investing their money in themselves rather than someone else's pocket.

In some cases, this may be true but it depends on your situation. If you are considering buying for the mortgage interest tax deduction, be sure you will have enough expenses to itemize.

Owning a home is a big responsibility. Be sure to look at the total costs and time involved in home ownership vs. renting before you decide to take the plunge.



 Pros and cons of jumbo loans
Dear EchoBay Expert: The size of house I'm looking to buy is around $350,000 and I'm concerned about paying a higher interest rate on a jumbo loan. Should I keep my home loan as a conforming loan and what are the jumbo loan limits?

Dear Loyal Reader: If you're purchasing a single-family home that's going to cost $350,000 and you want to stay out of the jumbo loan limits, you're going to need to have $27,300 to put down on your home. The moment your loan amount exceeds $333,700 (for 2004) you've entered the realm of jumbo loans.

Each year the loan limits change. In 2003, the limits were $322,700 for a single family home, and in 2005 you can expect them to be above the 2004 amount. Jumbo loans are considered nonconforming loans as they do not meet with the loan requirements set by Fannie Mae and Freddie Mac, the two largest sources that lenders use to fund their mortgages.

That means the lender is taking more of a risk when granting the loan, and as such, the loan comes attached to a higher interest rate and higher fees. Exactly how much more money you'll pay for a jumbo loan as opposed to a conforming loan will depend on the economy and your personal situation.

If you want to keep your costs as low as possible, try coming up with a down payment large enough to keep your loan within the conforming loan limits or take out an 80/20 or piggy-back loan in order to keep your interest rates down.


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