A veteran buyer was looking at looking at some nice homes in Hollister. There seemed to be a disconnect between their enthusiasm for the homes and making the comment to buy one of them. It wasn’t that they didn’t qualify. I had already pre-approved them for much more than they were looking at. As we talked the light bulb came on! The transition from their comfortable rent to a significantly higher payment was a quantum leap for them and it was hard to swallow – until…….
I sat them down and shared what many homeowners have learned over the years. Your accountant can tell you what your new tax liability will be if you buy that tempting home. In most cases the amount you will be required to pay in income tax will DROP because of the larger amount paid toward interest and taxes. Some of us have figured that it is better to reduce our income tax withholding from our paychecks each payday rather than get our refund in a lump sum (with no earned interest) at the end of the year.
Here is their example: Sales Price: $650,000; New VA Loan: $591,800; Total Principal, Interest, Taxes and Insurance: $4,210; Income Tax Deduction at a 26% tax bracket: $898/mth; Net “House Payment” after income tax deduction: $3,312.
Same home, same terms but a house payment that feels like $3,312. That made the difference. They will simply need to take a new W4 form to their employers and have them reduce their withholdings by $898 so they will have that much more to take-home each month. While they still make the actual payment of $4,210 the additional take-home pay makes the leap in house payment more palitable.
They will break even at the end of the year: they won’t owe much income tax nor will they get much of a refund. HOWEVER, they will have received their refund during the year to help offset their new, higher payment.
Everybody was happy and moved forward with what they really wanted to do.
I love solving problems for people! Have you done this yet?