The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of CrossCountry Mortgage or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.
February 3, 2020
It’s that magical time of year where little white slips appear in the mail and your inboxes… you guessed it, TAX TIME! So this week, in anticipation of people getting those pesky tax filings out of the way, I want to talk about things you need to know about your taxes so that you can buy a home!
So the good news is that if you’re paying taxes, you’re at least making money! I know that little sliver of sunshine might not make paying them any more fun, but we’re trying to look on the bright side here!
So tax “season” as it’s been called, can mean different things for different people. For some, it means there’s yet another bill coming, and you need to shell out more dough to the IRS. And for others, it means you may have paid too much over the course of the year, and you have a refund coming to you!
There are so many things you can use your refund for… (paying down debt is a great option) but have you considered using that tax refund as either part or all of a downpayment on a home?
The average tax refund these days is about $2,800.00.
In Phoenix Arizona, as of the time of this post, the minimum funds required to purchase a home with down-payment assistance is $2,000.00.
Coincidence? Maybe! But the point is, if you are someone who is frustrated with renting and would like to own your home rather than pay to live in someone else’s, your tax refund may be just what you need for a down payment.
Something interesting to note here: The average monthly rent payment in most American cities is actually HIGHER than the average monthly mortgage payment.
For example, in Phoenix, average rent is $1,500.00 per month. The average sale price for a home is around $250,000.00. If you were to choose an FHA mortgage on $250,000.00 at 4%, your mortgage payment is going to end up somewhere right around $1,500.00 per month. (Obviously this is not a rate quote, and actual numbers will depend on a variety of factors that you can learn about in our other money tip videos).
The lesson here is that for the same amount of money, you might be able to own your home versus renting it.
“But Lizy, why would I want to own a home when I can just rent it for the same price?” … I have one word for you: Appreciation. The value of the home you purchase will (most likely) increase with time, but your payments will remain the same. If you rent, you will never reap the benefit of that appreciation. Your landlord will, while you pay their mortgage for them.
Playing devil’s advocate for a second, you will have to be responsible for home repairs if you make the switch from renting to owning. But even that doesn’t need to be a huge burden! (Check out my video on how to budget for home repairs for more info on that topic!!)
I’ve heard every reason there is for not wanting to actually list one’s income on their taxes, but when it comes to borrowing money to purchase a home, the only way to prove your income to the lender is by showing your tax returns.
There are a few exceptions to this, but in general, most lenders need verify your ability to repay based on your income as reported to the IRS. I get it- the less money you declare, the less taxes you pay. But there are more effective ways to minimize your tax liability with deductions that don’t prevent you from qualifying for a home loan.
I recommend talking to a reputable tax professional to learn what the best strategy for you is. Depending on your types of income and what you are able to deduct, they might give you options to help you qualify for a mortgage if you haven’t in the past!
Many people find the idea of taxes really intimidating. Especially if they have not filed before, or may have past tax issues. But I can promise you that simply talking to a tax professional and starting to address it will help set you on a path that will help you realize your financial goals. And keep in mind, having a payment plan to repay back taxes does not necessarily prevent you from qualifying for a home loan!
Bottom line, the choices you make regarding the tax return you file this year could affect your ability to purchase a home in the coming years. So my best advice is to be cautious, file on time, declare all of your income with the appropriate deductions, and talk to a tax professional so that you can get the most out of your income, and eventually, have the most buying power available to you!!
Lizy Hoeffer NMLS ID # 260183. AZ LO-0913409 I am authorized to conduct business in the state of Arizona. All loans subject to underwriting approval. Certain restrictions apply. Call for details. THIS SITE IS NOT AUTHORIZED BY THE NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES. PHONE NUMBERS DISPLAYED ARE NOT FOR USE BY NEW YORK BORROWERS. NO MORTGAGE SOLICITATION ACTIVITY OR LOAN APPLICATIONS FOR PROPERTIES LOCATED IN THE STATE OF NEW YORK CAN BE ACCEPTED THROUGH THIS SITE. CrossCountry Mortgage, LLC. NMLS1925878, 3100 West Ray Road, Suite 201 Office 212, 218, 219 & 228, Chandler, AZ 85226 (www.nmlsconsumeraccess.org)
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