We had borrowers call yesterday with $173,000 in total income. They were looking to buy a house in the $350,000 range so their payment would not be too much higher than their current rent payment of $2,000 per month.
These borrowers, however, are paying the top Federal and State income tax rates of 34% and 10% (total of 44%) for their top tier of income. Therefore, a full 44% of the interest and property expenses they incur from buying a house will result in direct tax savings.
A $500,000 FHA purchase with 3.5% down yields a payment of just over $3,400 in this market. This same purchase will result in about $30,000 of “fully deductible” interest and property tax expenses every year. Hence, the purchase can yield 44% of $30,000 in direct income tax savings every year. This works out to about $1,100 per month.
This makes the “net payment” after tax savings about $2,300 per month ($3,400 PITI less $1,100 of tax savings). Our borrowers referenced in the first paragraph can easily afford a $500,000 purchase.
And they can realize their tax savings immediately by adjusting their take-home pay as soon as they buy (by declaring more dependents).
We are more than happy to explain this in more detail. Feel free to contact us, or to have your clients contact us.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167