January 5th, 2018

3 Things You Should Know if Buying a Home in 2018

With recent changes to the tax code, it seems like homeownership in some parts of the country has become less affordable overnight. Here are a few changes you should be aware of.

1. Your Housing Costs Should Not Exceed 30% of Your Take-Home Pay

At a minimum, this should include, but not be limited to property taxes and homeowner’s insurance. For better protection, you should also include maintenance expenses, which would be roughly one to four percent of your home’s value annually. If you are a first time homebuyer, I would shoot for right in the middle at 2.5%.

2. You Can Still Deduct Your Mortgage Interest

While legislators have been arguing to eliminate the deduction for years, this key deduction will remain intact for the current tax year. As a result of the new tax changes, mortgage interest can only be deducted for loans up to $750,000. However, if you’re not planning to itemize on your tax return, then there’s no need to worry about the mortgage interest deduction. Since the new tax rules effectively double the standard deduction, its estimated that fewer filers will deduct their mortgage interest moving forward.

3. Your Property Tax Deduction May Be Capped Moving Forward

The new tax law limits the extent to which you can deduct your property taxes. In fact, your total SALT (State and Local Taxes) deduction maxes out at $10,000, whereas before it was unlimited. This should not have a big impact on Missouri homeowners, as we have relatively low property taxes, as compared to the rest of the nation.

Again, if you are not planning to itemize on your tax return, then this change won’t affect you. One thing you should be aware of is that some experts say that home values may soon start to drop as a result of the new tax laws, since by taking away a portion of the tax breaks once enjoyed, they make ownership less affordable in certain parts of the country. If you plan to buy and hold versus buy and flip, then this change shouldn’t affect you. For flippers, when they unload the home in six months to a year, prices could fall, as more buyers see their tax breaks go down and their tax bills go up.

In conclusion, buying a home is a great financial decision that can serve you well for the long run, however it is important to know what you are getting yourself into before signing on the dotted line.

Feel free to reach out to me if you have any questions, I look forward to hearing from you.

-Paul Bealafeld