The CFPB forbids mortgage advisors from giving “income tax advice” for good reason. Income tax issues can be very complex, and mortgage advisors/loan officers simply lack the required training. Interestingly, we often see tax advisors giving “mortgage advice”, despite the extreme complexity of the mortgage world.
Despite the above, we do like to point out general guidelines with respect to income tax savings. In most cases, owner-occupied-buyers can deduct all of the interest and property taxes they pay in a given year from their total income before they calculate their income tax liability.
We bring this up again b/c so few of our buyers seem to fully understand this, and it is an extremely important consideration when evaluating housing payments. For example, we were recently contacted buy a buyer with over $320,000 of income. His combined state and federal tax bracket is over 50% (50% of his top tier of income goes to income taxes).
This buyer is purchasing a $900,000 home with $720,000 mortgage. He will have about $38,000 of annual interest and property taxes to deduct from his income (for tax purposes) as soon as he buys. Because he is in a 50% tax bracket, he will save about $19,000 of income taxes when he buys his home. This works out to almost $1,600 per month in income tax savings, making his after tax payment lower than his current rent payment.
This analysis is obvious to those of us in the industry, but new buyers need to be aware of this. We always set out these general guidelines for all new pre-approved buyers. New buyers should of course also see their tax advisors to understand the specifics relative to their tax bracket.
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646