Property Taxes In Mortgage Qualification And How It Affects DTI
This BLOG On Property Taxes In Mortgage Qualification And How It Affects DTI Was UPDATED On January 9th, 2019
Home Buyers, especially first time home buyers, property taxes in mortgage qualification is one of the most important aspects to consider when buying a home. Property taxes vary from state to state and county to county and sometimes, city to city.
- For example, my property taxes where I live is $12,000 per year
- However, the town next to me which is less than a mile away, property taxes for a similar sized property on a similar sized lot is only $2,000
Difference In Property Taxes Depending On County
Why such a huge difference?
- The town bordering my town has a landfill in that town
- Due to the landfill, property owners pay substantially less in property taxes than the surrounding towns
- Property Taxes is different depending on what county the home buyer is buying their home
Shopping For Home
When shopping for a home, property taxes needs to be considered because property taxes in mortgage qualification affects the debt to income ratio of borrowers.
- There are situations where property taxes in a particular geographic region can be ridiculously high
- This can definitely affect home buyer’s buying power
- Property taxes in mortgage qualification will affect debt to income ratio calculations
- Property taxes in mortgage qualification are calculated by mortgage underwriters
- Housing ratios could affect mortgage borrower’s bottom line buying power of a particular home
- When a loan officer qualified mortgage borrowers, the mortgage loan originator will ask what the current property taxes are on the subject property to calculate property taxes in mortgage qualification
- There are cases where a $100,000 home has property taxes assessed at $7,000.00 per year
- There are other cases where a $400,000 subject property only has property taxes that are only $1,500
- Property taxes are not fair and do not make sense sometimes
- Property taxes in mortgage qualification is extremely important especially with borrowers with higher debt to income ratios
- Many folks make the mistake of purchasing a home with high property taxes and regret it after they move in
- Home buyer’s realtor will help home buyers shop for homes with lower property taxes areas when shopping for a home if property taxes may pose an issue in buying a home
Claiming Homestead Exception For Property Taxes
In general, non owner occupied properties have higher property taxes than owner occupied properties.
- Home Buyers purchasing a property from a non owner occupied owner, the current non owner occupied property taxes will be used to qualify property taxes in mortgage qualification
- Unfortunately the taxes after a homestead exception will not apply for mortgage qualification purposes when a mortgage underwriter is underwriting the loan
- This can be an issue with borrowers with high debt to income ratios
- The mortgage loan underwriter will be using the current investor owned home’s property taxes for income qualification
Appeal Property Taxes If Property Taxes Are Higher Than Neighbors
Home Buyers paying higher property taxes than their neighbors can appeal property taxes with the County Assessor’s Office.
- Be prepared to provide proof of similar and like properties within a 1 square mile area
- Home Buyers can also hire a private appraiser to appraise their property and contest the value of their property taxes with the county
There are attorneys and consultants that will contest property taxes and will charge a percentage of their first year savings.