Real Estate

New Tax Law and Home Purchase

New Tax Law and Home Purchase

Confusion surrounding the recently passed Tax Cuts and Jobs Act (TCJA) is widespread in higher local tax states like California and the Northeast. While many buyers are postponing the purchase of a new house this season, waiting until 2019 to find out what is owed in taxes for the 2018 tax year could be a mistake.

Expenses That Will Increase as Upgrading To A Bigger Home

From Forbes.com

There are solid reasons to upgrade your home. For many, it was always the plan. You buy a starter home, and upgrade to a larger one once your family expands. Or your income expands, and you finally move into your dream home. Regardless of your reason, the typical first step is determining what you can afford. A standard rule for lenders is that your monthly housing payment (principal, interest, taxes and insurance) should not take up more than 28% of your income before taxes[...]

Lenders asses your monthly income, debt, credit score and a variety of other factors to determine how much you can "afford". However, they don't look at how your expenses will grow after upgrading to a bigger and better house. The bigger the house, the bigger the expenses, in every possible way. So while banks lure you by saying you can afford a $1 million mortgage loan, remember that they want you to take as big of a loan as possible. It is up to you to consider these increased expenses when looking at how much house you can afford. And while it's not always the case, for the purposes here assuming the larger the house, the more valuable:

  • Taxes
  • Insurance
  • Utilities
  • Home and lawn maintenance and repairs
  • Furniture / Decore

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