Could property taxes be the reason why you’re having difficulty selling your home

          Today, the standard for many Americans is to get a 30-year mortgage with an escrow account when purchasing a home. Each time a homeowner makes a payment on a 30-year mortgage, some of the money is applied to the principal, some of it pays the bank interest, and the remainder goes into the escrow account. The money from this account is used to pay taxes, mortgage insurance, home insurance, and in some cases, private mortgage insurance (PMI). If these payments are too high, a bank may not lend to a perspective buyer of your home. Let’s look at an example:

          You have your home on the market for $200,000. Mr. and Mrs. Smith are considering purchasing your home. Mr. Smith works as a plumber and makes $60,000 per year while Mrs. Smith stays at home to take care of their two young children. Together, Mr. and Mrs. Smith saved $40,000 towards the purchase of your home. They are attempting to get a loan for your home, and the going interest rate on a 30-year loan is 4.25%. Your home has a Homeowners Association (HOA), which costs $210 per month, an insurance payment of $82 per month, and the current year’s property taxes are $4,500. Will a bank lend to Mr. and Mrs. Smith?

          Many banks use as a guideline the 28% rule. A monthly mortgage payment should not exceed 28% of Mr. and Mrs. Smith’s gross income. Anything above 28% is deemed risky. In this example, Mrs. Smith staying home with the children is very noble, but does not increase their gross income. Thus, we start by dividing Mr. Smith’s $60,000 salary by 12, which equals $5,000. That’s how much Mr. and Mrs. Smith make per month. We then multiply .28 by $5,000, which equals $1,400. That’s how much of a monthly payment the Smiths can afford before banks would consider them risky.

          Given the interest rate, HOA, and insurance, with your current taxes at $4,500 per year, Mr. and Mrs. Smith would have to make mortgage payments of about $1,454/month. In this scenario, Mr. and Mrs. Smith might not receive the loan because a bank may consider them too risky. However, if you had filed for an appeal for your taxes and won a reduction to $3,500, Mr. and Mrs. Smith’s monthly payment would be about $1,370 per month.  By appealing your taxes, Mr. and Mrs. Smith can now purchase your home. 

Contact Property Tax Attorney Clyde Guilamo to file your next property tax appeal.