Buying Home With High Property Taxes Affects Debt To Income Ratio

This BLOG On Buying Home With High Property Taxes Affects Debt To Income Ratio Was UPDATED On August 5, 2017

When home buyers close on a new home purchase, the monthly housing expenses consists of the following:

  • Principal payment
  • Interest payment
  • Property taxes
  • Mortgage insurance premium
  • Homeowners insurance

Buying Home With High Property Taxes Affects Debt To Income Ratio and may limit a home buyer’s buying power and how much home they can afford. One of the things home buyers need to seriously take into consideration when buying a home in a certain areas are the property taxes.

Buying Home With High Property Taxes Affects Debt To Income Ratio And Buying Power

Buying Home With High Property Taxes Affects Debt To Income Ratio and how much home a home buyer can afford:

  • The mortgage payment will probably be fixed on a 30 year fixed rate mortgage.
  • On FHA Loans, mortgage insurance premium will be 0.85% of the loan amount so that payment will stay constant.
  • As time passes, mortgage balances goes down. 
  • Homeowners insurance will probably not fluctuate and homeowners can always shop for cheaper homeowners insurance. 
  • However, property taxes can go up.
  • Homeowners need to pay property taxes even when they have paid off their mortgage loan balances.

Property Taxes In U.S.

Every county in the United States have different property tax rates.

  • Some counties in Florida  and Illinois have property taxes rates that are almost 10% of the value of the home. 
  • For example, in Round Lake Beach, Illinois which is part of Lake County, one of my clients just closed on a $60,000 home and his property taxes are $6,400 per year. 
  • It is a 1,200 square ft. home on a small lot with ridiculous property taxes. 
  • His monthly property taxes are more than his mortgage payments. 
  • A few miles from Round Lake Beach, a $275,000 home has property taxes that are only $1,500 per year on a 2,700 square ft. home on a half an acre. 
  • Property taxes are extremely unfair and there is no way to justify how a village or county can have such discrepancies on how they charge hard working property owners.

Buying Home With High Property Taxes

Home Shoppers who are on a budget and are maxed out on monthly housing expenses need to be prepared that property taxes can increase after purchasing the home which will boost monthly housing payment.

  • In the city of Chicago, property taxes were going up double digits every year in the early to mid nineties.
  • Property taxes continued to climb until the mid 2000’s forcing homeowners on fixed income to sell their homes because they no longer could afford it. 
  • Purchasing a home with low property taxes does not mean that property taxes will remain the same. 
  • In some cases, property taxes can double or even triple after the purchase of the new home. 
  • First time home buyers really need to be aware of this dangerous potential of sudden property tax hikes.
  • Homeowners need to be prepared to either have reserves or have some cushion on their monthly income to prepare for a potential property tax hike. 
  • It is unfortunate that the government do not know how to manage tax payers money and still be broke after all of the property taxes they levy on homeowners.

Appealing Property Taxes

Homeowners have a right to appeal their property taxes if they feel that similar homes have lower property taxes.

  • There are attorneys who specialize in property tax appeals and they normally charge a percentage on property tax savings.
  • Homeowners can also appeal property taxes themselves.
  • Check comparable homes in the area to check whether those homes are in line.

Related> Property Taxes In Mortgage Qualification

Related> What If You Can’t Afford Property Taxes?

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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