With mortgage payments, taxes, homeowner's insurance, and other monthly obligations, it can be difficult for many new homeowners to save money and get ahead. With this in mind, lenders have come up with an exciting new way to help home buyers. The new program, known as T.A.M.I. or tax advantage mortgage insurance, can save home buyers thousands of dollars right from the start.

What is mortgage insurance? Designed to protect the lender--not the home buyer--mortgage insurance ensures that the lender will receive payment in full on the loan, should there ever be a need to foreclose on the home and sell it for less then the current loan amount. Mortgage insurance is required in the state of California on most loans exceeding 80% LTV (loan to value). This means that in most cases, buyers coming in with less than a 20% down payment will be required to pay mortgage insurance. Unfortunately, mortgage insurance is very expensive on low down payment loans. For example, if you purchase a $275,000 home and put 3% down, your monthly mortgage insurance payment will be $231.18. Even worse, you will not be able to write any portion of this off on your taxes. Buyers should expect to pay mortgage insurance until they reach 75% - 80% LTV, with the majority of lenders removing the mortgage insurance at 75% LTV.

For years, lenders have offered alternatives to help buyers avoid costly mortgage insurance. Most of you have probably heard of these types of programs, referred to as 80/20 loans. This means that the lender offers a first mortgage at 80% LTV and a second mortgage for 20%--or less if the buyer is coming in with money down. This is a great option, however, the interest rate for the second is usually much higher than the rate on the first. Also, if the home buyer was considering a second mortgage for home improvements or debt consolidation, they will have to explore other options, because a second already exists on the property. The 80/20 loan is a great way to avoid paying mortgage insurance, but creative lenders have recently come up with something even better.

T.A.M.I. or tax advantage mortgage insurance gives the homeowner the option of paying for mortgage insurance in the form of taking a higher interest rate on the loan. Many buyers are put off by the way this sounds--until they compare the numbers. Looking at the big picture, remember that 100% of mortgage interest is tax deductible. For comparison purposes, we'll use that same $275,000 home with a 3% down payment. First, let's look at the payment with mortgage insurance and a lower interest rate of 7%. In this scenario, the total payment would be $2,005.87, of which $18,672.50 is 100% tax deductible for the year.

With the T.A.M.I. program, which offers lender-paid mortgage insurance and a higher interest rate of 7.5%, the payment would be $1,865.15, of which $20,006.25 is 100% tax deductible for the year. As you can see, although the buyer takes the higher interest rate, they actually save $140.72 a month in payments and are able to have an extra $1,333.75 in interest tax deduction. Another thing to keep in mind is, unlike the popular 80/20, which is a great loan, the buyer only has a first mortgage and can take out a new second for home improvement or debt consolidation if needed.

Most lenders now offer T.A.M.I. on a variety of programs in their portfolios. If you're shopping for a home and know you'll be putting less than 20% down, T.A.M.I. is a great option to explore. Your mortgage professional should be happy to quote you rates with and without T.A.M.I. If you have any questions regarding tax advantages, please consult your accountant. T.A.M.I. is just one of many programs designed to help home buyers maximize their dollars. Remember, if you do a little research before you sign on the dotted line, you can make your dollars work harder and smarter.