New Tax Law Helps a First Time Home Buyer Purchase a More Affordable Home

First Time Home Buyer Can Use New Tax Laws to Make a Home Purchase More Affordable

There’s a lot of good numbers flying around these days about real estate!  Existing home sales, new home construction, and other confidence numbers continue to rise.  Actually a recent USA Today article stated, “homebuilder confidence hit the highest level in 18 years in December“!  So, this means that home prices are going up.  Higher home prices benefit homeowners and sellers.  Conversely, higher home values make homeownership a little more difficult for a first time home buyer.  Obviously, higher prices mean higher monthly mortgage payments.  But, there is some potentially good news for many first time home buyers inside the new 2018 tax laws.

First Time Home Buyer Benefits From New Tax Lawsfirst time home buyer

Many tax payers are going to have lower income taxes starting in 2018 because of the much higher standard deductions, lower tax rates, and higher child tax credit.  Single tax payers will have a standard deduction of $12,000 and married filing jointly will have a $24,000 standard deduction.  These larger deductions could lower the taxable income and thus the income taxes.  The goal of the Tax Cuts and Jobs Act of 2017 is to put more money in the pockets of Americans as well as to stimulate more and better paying jobs.  So how does a first time home buyer benefit from this tax law?

Tax Savings = Payment Affordability

First of all, get with your CPA to figure how the new tax laws affect you.  If you don’t have a CPA, find one that is able to help you plan your savings.  Just think, if you are projected to gain another $200 – $400 per month in lower taxes, then you could then afford a higher priced home!  Plus, you could use this plan from your CPA to lower your payroll taxes to net the gain in each paycheck rather than waiting for tax refund season.  It is a potential cash flow increase immediately.

Higher purchase prices in larger markets have been the biggest hurdle in making a purchase out of reach for a first time home buyer.  Additionally, the small increase in mortgage interest rates have effected buyers as well.  But for instance, if a buyer is able to realize a hypothetical $300 per month gain in net income like above, then a $100 to even $300 higher house payment may be feasible.  It could make a buyer more comfortable in buying a home.

Use a Tax Refund as Down Payment to Buy a Home

Down payment is one of the largest obstacles to homeownership, but typically prospective buyers have more funds during tax refund season over any other time of the year.  First of all, there are no down payment home loan options like USDA and VA home loans.  These are wonderful mortgages that provide affordable monthly payments with no down payment required.  But, when a down payment is required on an FHA or conventional loan, that is where a tax refund can help!  FHA has a minimum of 3.5% down payment while conventional loans allow as low as 3% down payment.  Just think, a tax refund of $4,000 – $8,000 could provide most or all of the down payment on a house!

Even if the buyer uses a product with no down payment or already has the down payment, the extra tax refund could turn a denial into an approved file.  The reason?  Because the more assets after the closing (lenders call this reserves), the better chances of getting a loan approval with lower credit scores or higher debt ratios.  Learn more details in one of our popular articles “Tax refund used as a down payment to buy a home“.

This article is not tax advice.  Always seek tax advice from a licensed tax professional or certified public accountant.

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Author: Russell Smith

Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.