Can You Deduct Medical Insurance Premiums from
Income to Qualify for a USDA Guaranteed Rural Home Loan?
If you work with the USDA Guaranteed Rural Home Loan program you are aware that not only do you have to qualify the borrower based on normal Debt to Income Ratios, but there is also an income cap on how much a household can earn.
After taking all household income into account, you can then take qualified deductions away to lower the household income. Without going into all of these, I received an email today from the USDA clarifying how Pre-Tax Insurance Premiums are treated. Basically, you cannot deduct the premiums from Income. AND, you need to use the Gross Income before the premiums have been taken out.
Here is the memo.
"September 17, 2009
Medical Deductions and Annual Income Calculations
Due to questions surrounding the treatment of pre-tax medical plans, the following is provided to supplement and further clarify the interpretation of deducting medical expenses in the calculation of annual income.
Section 1980.347 of RD Instruction 1980-D provides instruction on the types of income to be considered in the annual income calculation.
Section 1980.347(e) describes the types of income that are not included in the annual income calculation, but may be considered in determining repayment ability. Section 1980.347(e)(6) of the instruction indicates:
"Amounts which are granted specifically for, or in reimbursement of, the cost of medical expenses."
This section does not allow for lenders to deduct the pre-tax medical premiums that applicants pay with wages earned towards their medical/dental/vision health benefits offered by their employers. These pre-tax employee premiums must be considered by lenders as gross income and utilized when calculating annual income.
Lenders seeking guidance on deducting eligible medical expenses for elderly applicants should refer to Section 1980.348(b) and 1980.348(d)(1) of RD Instruction 1980-D.
Questions regarding this notice may be directed to your state GRH coordinator or the division at 202.720.1452.
The Good news is that a low incoem borrower will qualify for more home since their Gross Income will be slightly higher. The bad news is that it may disqualify some borrowers who now make too much income.
Larry Morris is a Certified Mortgage Planning Specialist and Certified Mortgage Coach with Golf Savings Bank in Beaverton, Oregon. He specializes in USDA Guaranteed Rural Home Loans, FHA Purchase and Refinance, FHA 203k Rehab loans, FannieMae HomePath loans and conforming purchase and refinances in the states of Oregon, Washington, Idaho and California.
He can be reached at 503-421-0096, or larry@PDX-Mortgage.com.
Thanks for the update Larry. Also, nice to know you are able to provide assistance to home buyers in Washington state. I'll save your contact information.
Thanks Greg. Let me kow if there is anything I can help you with.