Before my girlfriend and I took the “leap” and jumped right into searching for our first home to buy, I was impervious to the joys of property taxes and its huge impact on the amount of home you can buy. From my initial conversation with my mortgage advisor Stephen Kulisek, I learned that upward shifts in the purchase price of a home have minimal impacts on what my monthly payment would be versus seemingly small shifts up in property taxes.
While I’m about the furthest thing from a mathematician, conventional wisdom has it that a $50K increase (in a home’s purchase price) would be more impactful on my finances than a $5K increase (in taxes). 50 > 5 after all, isn’t it? Well, the reason why this can be wrong and fly against typical math is that an increase in the cost I’m paying for a home is spread out over the life of my mortgage (usually 30 years) while what you pay in property taxes is a cost incurred every year and usually paid monthly.
I’ve crunched some numbers on our Coldwell Banker Mortgage calculator to get a really quick and dirty look at how property taxes impact the amount of home you can buy. Let’s take a look.
Listing Price: $259,000 with 10% down and a 3.5% interest rate
Property Taxes: $8,000
Annual Insurance: $720
Annual Condo Association Fees: $3,600
Estimated Monthly Payment: $2,195
Listing Price: $298,000 with 10% down and a 3.5% interest rate
Property Taxes: $2,536
Annual Insurance: $720
Annual Condo Association Fees: $3,336
Estimated Monthly Payment: $1,893
So for these two real listings I’ve found on coldwellbanker.com, I could conceivably end up purchasing a $39,000 more expensive home and still end up saving over $300 a month, which amounts to over $100K over the life of a 30 year mortgage. This isn’t exact science, and things get even muddier if you’re purchasing a single family home and aren’t burdened by condo fees, but clearly working hand in hand with your Realtor and a mortgage professional is a pivotal part of navigating this whole homebuying process and getting your dream home at a price you’re comfortable with.
Coldwell Banker Home Loans Mortgage Advisor Stephen Kulisek puts this into much better perspective for us:
“In this market every $10,000 borrowed may cost you only about $45 per month on a 30 year fixed mortgage while every $1,000 in real estate taxes per year will cost you about $83 per month. This means that from town-to-town and in some cases even street-to-street your Buying Power can change by almost $20,000 with every $1,000 spent on real estate taxes. Wow is right! This could mean the difference between that $380,000 home or the $400,000 home just a few miles away. The same logic applies to the requirement of monthly flood insurance in certain areas or mandatory homeowners association dues. So remember, Buying Power all comes down your total monthly housing payment and knowing the facts, staying informed, and doing your research are the keys to success in this home shopping season.”