You saved up for a down payment. You spoke with a mortgage lender and know the price range you can afford. During your search, you found your dream home that seems to check off all the boxes. And, although it is at the high end of your budget, you believe you can make it work.
Then the news comes from your lender: you actually can’t afford this house.
What happened? A common mistake for first time home buyers is looking at the list price of the home and neglecting to factor in property taxes.
As you complete your home search, always keep in mind the property taxes. If you are looking in multiple counties, note what the property taxes are in each, and look at past taxes for the homes you are serious about. This adds to your monthly mortgage payment, and if the taxes are high, can possibly keep you from getting a home.
How are property taxes determined?
Property taxes are set by the local government in each county. Every one to five years, a tax assessor will value the property and the buildings on it to determine the appropriate property tax, using standards set by the local government. Even after a mortgage is paid off, homeowners continue to pay property taxes every year. It’s important to stay up to date with the assessed value of your home and any tax increases in your town so you won’t be surprised by an increased property tax.
How do property taxes affect my home search?
If you are getting a mortgage loan to buy a home, property taxes can affect what you can afford. Property taxes are usually included in the monthly mortgage payment. When you are approved for a loan, you are constrained by a maximum amount you can pay each month. A home appraised for $350,000 in one county could have property taxes of $5,000 per year. A house of the same value in a different county could have property taxes of $8,000; a difference of $250 per month. If you are at the top end of your budget, you may not be approved for the home with higher property taxes. Some mortgage lenders approve per property, rather than by list price, to avoid this issue.
Are there tax deductions for property taxes?
As of the 2018 tax year, there are new guidelines for property tax deductions. The Tax Cuts and Jobs Act put a cap of $10,000 per year on federal deductions for state and local taxes (SALT). This means you can deduct a maximum of $10,000 in property taxes each year.
As you search for a new home, be aware of the property tax rate for the town you want to live in. Always speak to your mortgage broker for details on your maximum monthly budget and your accountant for tax deduction specifics.
Ready to begin your home search?
[maxbutton id=”6″ text=”Find an Agent!” ]