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 And PUBLISHED On February 25th, 2020

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
• High property taxes often lower property values
• For example, many homes in Illinois is depreciating in value due to high property taxes

In this article, we will cover and discuss how property taxes affect qualifying for a mortgage.

Difference In Property Taxes In Mortgage Qualification Depends 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 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

When 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 borrower’s debt to income ratios.

• There are situations where property taxes in a particular geographic region can be ridiculously high
• This can definitely affect the home buyer’s buying power
• Property taxes will affect debt to income ratio calculations
• Property taxes 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.

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:

• 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 tax areas when shopping for a home if property taxes may pose an issue in buying a home.

Claiming Homestead Exception

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.