When you’re on the hunt for a new home, you’re probably thinking more about how big the kitchen is or the backyard, NOT how much you have to pay in property taxes. We get it—the backyard and kitchen are waaaay more fun!
When shopping for a home, property taxes NEED to be considered. Property taxes affect the total cost of homeownership! And this affects buying power. Mortgage underwriters will take property taxes into consideration when calculating borrower’s debt to income ratios (DTI). DTI measures your monthly income against your ongoing debts, including your mortgage, property taxes & homeowners’ insurance, to figure out how large of a payment you can afford. If you’re on a strict budget, factoring in property taxes is CRUCIAL!
Let’s use an example where our buyer has a budget of $1500 for their monthly mortgage payment:
- Buyer finds two houses they like in neighboring towns.
- Both houses cost $200,000 with an assessed value of $160,000.
- House #1: tax rate is 1%
- House #2: tax rate is 2%.
You might be thinking, 1% isn’t that big of a deal. Oh, but it is!
- House #1: mortgage payment (including taxes) = $1,388
- House #2: mortgage payment (including taxes) = $1,522
With a $1,500 budget, House #1 is a great choice, but House #2 is over budget. It may not seem too far over budget, but owning a home often brings other expenses. That’s why it’s so important to calculate property taxes prior to purchasing a home. Having a nearly accurate monthly payment will make a world of a difference for your house hunting needs and finances!
Don’t let property taxes be a budget buster!! One way to make sure that doesn’t happen is to work with a real estate professional. Our team at Agent06 knows the local markets inside and out and can guide you toward a home that actually fits your needs and stays within your budget!
Knowledge is power and we’re here to empower you in all your real estate needs!