Is A Down Payment On A House Tax Deductible? (Kind of a Big Deal)

By James Young on October 28, 2013
Is A Down Payment On A House Tax Deductible? (Kind of a Big Deal)

“Is a down payment on a house tax deductible?” is a common question asked by first-time home buyers. While it would be wonderful if the appropriate answer was “Yes,” it’s not to be. Buying a home does offer multiple tax deductions, but down payment dollars are not among them.

Mortgage Lender Rules

Depending on the specifications of mortgage programs, different downpayment percentages apply. Unfortunately, regardless of the mortgage program you want, real estate downpayments are not tax deductible. Some common mortgage lender downpayment minimums.

  • Conforming mortgages (Fannie Mae and Freddie Mac) typically require 20 percent down payments. There are a few conforming loans that allow 5 to 15 percent down payments.
  • Conventional mortgages meet Fannie Mae and Freddie Mac guidelines, but may or may not be sold to either of these agencies.
  • Government mortgages are often misunderstood as FHA (Federal Housing Administration), VA (Veterans Affairs, formerly Veterans’ Administration), and USDA (US Department of Agriculture) home loans usually are not made by one of these government agencies. Typically, the FHA, VA or USDA guarantees specific percentages of these mortgages and set the guidelines for borrower and loan eligibility.
  • Non-conforming mortgage loans are those that don’t fit any of the above types. Very popular during the “housing bubble” in the early 2000s, when the bubble burst many non-conforming loan types disappeared. Many lenders still believe this loan type is too risky and no longer offer them.

Downpayment minimums fluctuate based on the program you want. However, tax deductibility is not a feature of any of these loan types. While most lenders would not object to downpayment tax deductibility, the IRS and the government strenuously does object.

Tax Deductions

Yes, this is a big deal. You’d be much more willing to put down more of your hard earned cash as a house downpayment. Buying a home, however, still delivers you other tax deductions.

  • Mortgage loan interest.
  • Real estate taxes.
  • Closing fees that increase the APR (Annual Percentage Rate) of the mortgage loan.
  • Mortgage insurance, required on all FHA and VA loans and on conforming or conventional mortgages higher than 80 percent loan-to-value (LTV).

Refinances

When you refinance your home, you typically don’t need a downpayment. However, you made need to add some cash if your equity amount is less than the required percentage of the home loan you want. You’ve probably guessed that this is similar to a downpayment. Therefore, the extra cash you bring to the table is equally not tax deductible.

Fortunately, all the aforementioned tax deductions still apply if you refinance the mortgage you used to purchase your home. You need not hesitate refinancing the first mortgage on your current home, since you’ll still enjoy the tax deductions for loan interest and real estate taxes, at a minimum.

First Time Homebuyers

First time homebuyers often experience the entire range of human emotions, from excitement and elation to frustration and/or depression. Focus on the excitement and elation; leave the frustration or depression behind.

Wherever you live, check with your state to see if they have some special mortgage programs just for first time homebuyers. Many lenders and state agencies offer more liberal mortgages for first timers. Don’t you feel special? You should, as lenders and state governments often try to offer help to first time homebuyers to navigate the confusing waters of home ownership.

You should still visit the HUD (Housing and Urban Development) website (to learn about FHA home loans), VA , Fannie Mae and Freddie Mac sites to learn more about home mortgages. You’ll be amazed at what you’ll learn.

We also have a lot more articles for first time home buyers on the LoanLove site, too. You will enjoy both fun and entertainment along with valuable mortgage knowledge that helps you make a more stress-free, budget-friendly home purchase.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!