Property Taxes in Mortgage Qualification

How Property Taxes in Mortgage Qualification Affects DTI

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers property taxes in mortgage qualification and how it affects debt-to-income ratios. For homebuyers, especially first-time home buyers, property taxes in mortgage qualification are one of the most important aspects to consider when buying a home. John Strange, a senior loan officer at Gustan Cho Associates, explains how property taxes in mortgage qualification affects debt-to-income ratios:

Property taxes in mortgage qualification affects buying power. A $400,000 home can have $4,000 or $18,000 in property taxes. Every city, county or township has different property taxes.

Property taxes vary from state to state, county to county, and sometimes city to city. For example, my property taxes where I live is $12,000 per year. However, in the town next to me, less than a mile away, property taxes for a similar-sized property on a similar-sized lot is only $2,000—high property taxes often lower property values. For example, many homes in Illinois depreciate due to high property taxes. In this article, we will discuss how property taxes affect qualifying for a mortgage.

Difference In Property Taxes In Mortgage Qualification Depends on the County

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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 are different depending on what county the home buyer is buying their home. States with lower property taxes often have stronger home values.

Shopping For Home

What are the purchases for the homeWhen shopping for a home, property taxes need to be considered. This is because taxes affect buying power. Mortgage underwriters will take property taxes into consideration when calculating borrowers’ debt-to-income ratios. There are situations where property taxes in a particular geographic region can be ridiculously high. This can affect the home buyer’s buying power. Property taxes will affect debt-to-income ratio calculations. Mortgage underwriters calculate property taxes. Housing ratios could affect mortgage borrowers’ bottom-line buying power of a particular home. When a loan officer qualifies mortgage borrowers,  the loan originator will ask what the current property taxes are on the subject property to calculate property taxes in mortgage qualification.

Assessments on Property Taxes in Mortgage Qualification

There are cases where a $100,000 home has property taxes assessed at $7,000.00 per year. In other cases, a $400,000 subject property only has property taxes of only $1,500. Property taxes are not fair and do not make sense sometimes. Property taxes in mortgage qualification is extremely important, especially for 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. Homebuyers’ realtors will help home buyers shop for homes with lower property tax areas when shopping for a home if property taxes may pose an issue in buying a home.

Claiming Homestead Exception

How to apply for an exemption from the household feeIn general, non-owner-occupied properties have higher property taxes than owner-occupied properties. For homebuyers 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 use the current investor-owned home’s property taxes for income qualification.

Appeal Property Taxes If  Property Taxes Are Higher Than Neighbors

Homebuyers 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. Homebuyers can also hire a private appraiser to appraise their property and contest the value of their property taxes with the county. Some attorneys and consultants will contest property taxes and charge a percentage of their first-year savings.

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