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Community Corner

High Property Taxes Directly Affect What a Buyer Can Borrow in a Mortgage.

Under the rules set by mortgage agencies, only 28% of family income can be applied toward total housing costs as calculated by adding mortgage principle & interest, property taxes and property insurance. When property taxes are high, that directly affects the amount lenders can make available to a family, since the property taxes are a component of the 28% of income allowable. So for example if a family’s income were $100,000 (that is above the median for LI) only $28,000 is to be considered for housing costs. These rules are back after the housing crisis. If the property taxes on a home they are applying to purchase were $11,000 and the property insurance was $2,000 then only $15,000 which is the maximum that could be considered available for mortgage principle & interest payments. That means that at an interest rate of 4%, this family can qualify for only $260,000 in mortgage financing in order for the mortgage principle & interest payments not to exceed the $15,000 can be considered available. The result is that a bank can, under today’s rules, only lend them a maximum of $260K even if they have perfect credit. So even if they have the 20% down payment, the most they could pay would be $325,000 for a home. That is why so many young people are leaving Long Island.

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