This guide covers how property taxes can determine buying power on home purchase. Every homeowner needs to pay property taxes. Property taxes are mandatory on all properties in the United States. Property taxes can determine buying power for home buyers because it affects debt-to-income ratios.
There is no set percentage of the home value that assessors assess each home’s property taxes. It depends on the county and the area where the subject property is located.
Property taxes do vary from state to state, region to region, county to county, area to area, as well as neighborhood to neighborhood. For example, the town I live in, my property taxes are $10,000 per year. A comparable home to mine just one mile west of my home in a different town, the property taxes are $2,000. By comparable, I mean the type of home, square footage, type of construction, lot size, amenities, cost of construction, and value.
Why Such a Difference in Property Tax Among Homes
On this particular case scenario, the neighboring town has a huge dump site. A large portion of the town’s revenues comes from the dump site. An $8,000 price reduction in property taxes is huge. Even if my home were free and clear of the mortgage, I would still need to pay the $10,000 in property taxes. My neighbor down the street who has a comparable property like mine with the same market value only needs to pay $2,000 in property taxes. Is it fair? Probably not but the government wants their money and they will get it. Most first time home buyers do not really do enough research with regards to property taxes when purchasing for their new home. Speak With about property tax for you loan
How Property Taxes Can Determine Buying Power on Homes
Property taxes can determine buying power on homes. There is no doubt borrowers with high debt-to-income ratios will indeed have an impact on your buying power when purchasing a home. Local governments levy property taxes to fund public services like schools, roads, and public safety.
The amount of property tax you’ll have to pay is typically based on the assessed value of the property and the tax rate set by your local government.
How property taxes can affect your buying power is affordability. Higher property taxes can reduce the affordability of a home. When you calculate your budget for buying a house, you need to consider the mortgage payment and property taxes. High property taxes can increase monthly housing costs, making it harder to afford a more expensive home.
How Lenders Determine Property Taxes in Debt-to-Income Ratio Calculations
Mortgage lenders will consider your debt-to-income ratio, which includes your monthly property tax payments. If property taxes are high, it can affect your debt-to-income ratio and impact your ability to qualify for a mortgage. Property taxes are often based on the property’s assessed value. High property taxes can put downward pressure on property values, as the additional cost of taxes may deter potential buyers.
Property tax rates vary by location so that some areas may have lower property taxes than others. This can influence your decision on where to buy a home. You can buy in an area with lower property taxes to maximize your buying power.
High property taxes can significantly increase the long-term cost of homeownership. It’s important to consider not only the purchase price of a home but also the ongoing property tax expenses when making a buying decision. Overall, property taxes are an important factor to consider when determining your buying power and evaluating the affordability of a home. It’s advisable to research property tax rates in the areas where you are considering buying a home and factor them into your budget and financial planning.
Property Taxes Can Determine Buying Power on Homes
Property taxes among the various areas fluctuate and most times, it does not make sense. There is not a set percentage of the home value on how property taxes are assessed. Many realtors will tell buyers to use a right-hand rule to figure 2% of the purchase price as a property tax estimator. Property taxes are not fixed. It is normally re-assessed every three years.
Many times property taxes increase due to road repairs, building new schools, or adding police and fire personnel. When purchasing a home, please keep in mind property taxes will gradually increase over time.
The 2% property tax rule is a general ballpark estimator but cannot bank on it. For example, in Round Lake Beach, Illinois, a $50,000 homeowner has a $5,000 annual property tax bill. That is 10% of the value of the home that the homeowner needs to pay every year. If a home buyer purchases this $50,000 property, the property taxes will be more than two or more times more than his principal and interest payments. contact our expert to determine you property tax on purchase Homes
How To Get Lower Property Taxes
Homeowners who are owner-occupants get a homeowners exemption by the county. This means lower property taxes for primary owner-occupant homeowners versus an investment home. Many cities and counties offer a property tax freeze for senior homeowners who are 65 years old and older.
We seriously recommend homebuyers to do some extreme due diligence on property taxes when home searching for a home purchase. Consider maybe moving in neighboring towns where their property taxes are much lower.
What this means is senior homeowners will have a freeze on property tax increases or possibly a property tax reduction. Most counties in the United States will waive property taxes on disabled veterans who are 100% disabled. Disabled Veterans with less than 100% disability often get reduced property taxes. For more information, check with your local county’s property assessors office.
Property Taxes Can Determine Buying Power on New Construction Homes
Home buyers buying new homes from a builder are normally assessed an initial property tax estimate for the first or two years. After the sub-division has been completed and the community has been established, the whole sub-division can get assessed new property taxes. Sometimes these taxes are more than the homeowner has anticipated and new home buyers need to keep this in mind. Borrowers who need to qualify for a mortgage with a lender with no mortgage overlays can contact us at Gustan Cho Associates at 800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
