How Property Taxes Can Determine Buying Power on Homes

How Property Taxes Can Determine Buying Power in 2025

When people are looking to buy a home, they usually pay a lot of attention to the sale price and their monthly mortgage payments. But there’s something else that can really mess with your budget: property taxes.

In 2025, more buyers are discovering that property taxes can determine buying power just as much as their income, credit score, or down payment. High property taxes can eat into your monthly budget, lower your qualifying loan amount, and even change where you can afford to live.

At Gustan Cho Associates, we specialize in helping borrowers understand how property taxes impact mortgage approval and show them smart ways to maximize affordability — even if other lenders said no.

What Are Property Taxes and Why Do They Matter?

In the U.S., property taxes are a mandatory obligation for homeowners. They serve as vital funding for local schools, fire and police services, and community improvements. The amount a homeowner pays is determined by several factors, including the assessed value of their home, the tax rate applicable in their county, city, or school district, and any potential exemptions that may apply, such as discounts for seniors or veterans.

Because they are recurring costs, lenders count property taxes as part of your monthly housing payment. That means property taxes can determine buying power by increasing your debt-to-income (DTI) ratio.

How Lenders Use Property Taxes in Mortgage Approval

Mortgage lenders don’t just look at your loan principal and interest. They include:

• Principal and interest (your loan payment).
• Property taxes.
• Homeowners insurance.
• HOA dues (if applicable).

This total is called PITI (Principal, Interest, Taxes, Insurance). If your property taxes are high, your total monthly housing cost will be higher, which can push your DTI above loan limits and reduce the loan size you qualify for.

Consider two homes, both priced at $300,000. Home A has annual property taxes of $2,500, while Home B carries a much heavier tax burden at $7,500 per year. Despite their identical purchase prices, the buyer of Home B ends up paying an additional $417 each month in property taxes. This increased cost can significantly impact their purchasing power, potentially reducing it by $50,000 or more, as lenders are required to maintain a certain debt-to-income (DTI) ratio.

This is why property taxes can determine buying power more than most new buyers realize.

Why Property Taxes Vary So Much by Location

Property tax rates vary widely — not just state to state, but even block to block. Two nearly identical homes can have drastically different tax bills.

• In some Illinois suburbs, a modest $50,000 home carries a $5,000 yearly tax bill — that’s 10% of the home’s value!
• In Texas, average property tax rates can run above 1.6% of a home’s value.
• In states like Hawaii, Alabama, or Colorado, rates can be as low as 0.3% or less.

This is why property taxes can determine buying power and influence where buyers choose to live. Smart buyers compare tax rates across towns before making a decision.

How High Property Taxes Reduce Affordability

Think of property taxes as a second mortgage. Even if you own your home free and clear, you must still pay taxes every year. For borrowers with tight budgets, high taxes can:

• You might end up with a smaller loan than you thought you’d qualify for.
• Reduce your monthly budget for other expenses.
• Make it harder to sell later, since buyers factor taxes into affordability.
• Increase long-term costs of owning the home by tens of thousands.

That’s why homebuyers must consider taxes from the start. At Gustan Cho Associates, we run the numbers for you, showing how property taxes can determine buying power in your area.

Property Taxes and New Construction Homes

If you’re buying a new build, be careful. Many counties underestimate property taxes in the first year or two. Assessors often raise taxes once the subdivision is complete to reflect the finished community.

This surprise hike can shock homeowners who budgeted based on lower initial estimates. Always plan and ask your lender how reassessments may affect your DTI and long-term affordability.

Exemptions and Programs That Lower Property Taxes

The good news? You don’t always have to accept high property taxes as a given. Many programs can reduce your bill and boost your buying power:

• Homestead exemptions for owner-occupied homes.
• Senior freezes for homeowners over age 65.
• Disabled veteran exemptions — in some states, 100% disabled veterans pay no property taxes.
• Agricultural or conservation exemptions in rural areas.

These programs vary by state and county, but can make a huge difference. Lowering your property taxes means more room in your budget — and more buying power when applying for a mortgage.

Real-Life Case Study: How Property Taxes Changed Loan Approval

Two buyers with an annual income of $85,000, identical credit scores, and the same down payment are looking to purchase homes. Buyer 1 opts for a $350,000 property with $2,500 in annual taxes. With their debt-to-income (DTI) ratio comfortably within acceptable limits, they find it easy to qualify for a mortgage on this home.

On the other hand, Buyer 2 also selects a $350,000 home, but this property comes with considerably higher annual taxes of $10,000.

As a result, Buyer 2’s DTI exceeds the lender’s thresholds, which leads to a lower loan approval amount of only $300,000. This scenario illustrates how significant differences in property taxes can impact the mortgage qualifications of buyers, even when their financial profiles appear similar.

Even though both buyers chose homes at the same price, the second buyer lost $50,000 of buying power because of property taxes. This example shows why property taxes can determine buying power more than home price alone.

How to Research Property Taxes Before Buying

Too many first-time buyers overlook taxes until the last minute. To protect your budget:

1. Check county assessor websites for current tax rates.
2. Compare neighborhoods — even one mile away, can save thousands per year.
3. Ask about reassessments — especially on new builds.
4. Talk to your lender early — at Gustan Cho Associates, we run scenarios with different tax rates so you know exactly how much home you can afford.

Property Taxes and the 2025 Housing Market

In 2025, property taxes are going up in a lot of states because of inflation and budget issues. States like New Jersey, Illinois, and Connecticut are still at the top for high taxes. Meanwhile, southern states like Florida, Alabama, and Tennessee are hanging onto their lower tax rates.

If you’re thinking about moving in 2025, picking the right state or county could save or cost you hundreds of dollars each month. That’s why property taxes are playing a bigger role in your buying power than ever.

How Gustan Cho Associates Can Help

At Gustan Cho Associates, we understand that property taxes aren’t just numbers on paper. They’re a key part of your budget and mortgage approval. Here’s how we help:

• We calculate how different tax rates affect your buying power.
• We connect you with loan programs with no lender overlays, making approval easier.
• We guide you through exemptions and strategies to reduce long-term costs.
• We’re available 7 days a week, evenings, weekends, and holidays to answer your questions.

If you’ve been turned down elsewhere, don’t give up. Contact us at 800-900-8569 or email gcho@gustancho.com. Our team can show you how to maximize your buying power, even with today’s property tax challenges.

Conclusion: Don’t Let Property Taxes Surprise You

When planning your home purchase, remember that the price tag is only part of the story. Property taxes can determine your buying power just as much as your income, debt, or down payment.

By researching taxes early, comparing neighborhoods, and working with a knowledgeable lender like Gustan Cho Associates, you can avoid surprises, protect your budget, and buy the home you truly want.

Borrowers who need a five-star national mortgage company licensed in 50 states with no overlays and who are experts on how property taxes can determine buying power, please contact us at 800-900-8569, text us for a faster response, or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

Frequently Asked Questions About How Property Taxes Can Determine Buying Power:

Q: How do Property Taxes Affect My Mortgage Approval?

A: Property taxes can determine buying power because lenders count them in your monthly housing costs. Higher taxes mean higher monthly payments, which can lower the loan amount you qualify for.

Q: Why do Property Taxes Change from One Town to Another?

A: Every county and city has its own tax rates, which is why two houses that cost the same can end up with really different tax bills. Since property taxes can affect how much you can afford, moving just a short distance can save you a ton of money.

Q: Can Property Taxes Make Me Lose a House I Wanted to Buy?

A: Yes. If taxes are too high, they can push your debt-to-income ratio over the limit. That’s why property taxes can determine buying power and even stop some buyers from qualifying.

Q: Do Property Taxes Go Up Every Year?

A: They often do. Local governments raise taxes to pay for schools, roads, and services. Since property taxes can determine buying power, you should plan for possible increases after moving in.

Q: How Can I Determine the Property Taxes Before Buying a Home?

A: Check the county assessor’s website or ask your lender to include them in your loan estimate. Knowing them early helps because property taxes can determine buying power.

Q: Do New Construction Homes have Lower Property Taxes at First?

A: Yes, sometimes, but once the subdivision is complete, the county reassesses. When that happens, taxes often go up. Remember that property taxes can determine buying power both now and in the future.

Q: Can I Lower My Property Taxes?

A: Yes. Many states offer exemptions for owner-occupied homes, seniors, or disabled veterans. Using these programs can help since property taxes can determine buying power and your monthly budget.

Q: How Much Can High Property Taxes Lower My Buying Power?

A: It depends on your income, but even a $300 a month tax difference can cut your buying power by $40,000–$50,000. That’s why property taxes can determine buying power in a big way.

Q: Do Lenders Treat Property Taxes the Same as Mortgage Payments?

A: Yes. Lenders include property taxes in your total monthly housing costs. Since property taxes can determine buying power, they matter just as much as your loan payment.

Q: Who Can Help Me Understand How Property Taxes Affect My Loan?

A: Mortgage experts like Gustan Cho Associates can review your situation, explain how property taxes can determine buying power, and help you find the right loan program.

This article about “How Property Taxes Can Determine Buying Power on Homes” was updated on August 19th, 2025.