Between $300K home with tax of $2500/yr vs. $225k home with tax of 4800/yr.Have 130K down to 15yr loan. Best?

Question

I'm deciding between on moving between two cities. Homes viewed in the two areas average like this. Town A:home $225k, avg taxes $4800/yr. Town B:home 300k, avg taxes $2500/yr. I've been in an apt. most of my life and would like to have home soon. Which option would be best from an economical standpoint, considering I have 130K to put down on either home. Is it better to pay higher taxes or higher mortgage in the long run? Which option would save us more.

Answer 1

First question to ask yourself - are both homes comparable?  If so, then I would look at recent real estate history - is ther ea reason why there is a significant difference in the house prices, especially with the disparity in taxes.  Next, I would have top wonder why the taxes on the less expensive house are so much more expensive.  Also, check and find out when the last tax appraisal was and what the houses were appraised for - if the appraisal on the $300K house was three years ago, you might get a rude surprise when they re-apprise.  SImilarly, on the 225K house, if the appraisal was a while ago, you might be pleasantly surprised if the prices have dropped.

If all else is equal, the $225K house with higher taxes is the better deal.  First, you will be paying 75K less in price.  Assuming that the taxes maintain their current differential, it will take 32 years of paying the higher taxes before you completely use up the 75K difference in price.

Second, for a 15 year mortgage at 7%, interest paid on 95K (225K - 130K) is $58,700 with payments of $853 P&I.  On the $170K mortgage, the interest paid is $105K with payments of $1528 P&I - a savings of almost $50K and a lower payment of almost $700 a month.  Assuming you can afford the second house (I assume you can since you are asking) by putting some of the $700 a month toward the mortgage payment, you could pay off the first house off quicker and save even more in interest.

Answer 2

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Answer 3

If the only thing you want to consider is the amount of money it will cost you to buy a home, Town A will be cheaper for actual money paid for the house and taxes.  Roughly, a 6% mortgage on $225K gets you a monthly mortgage payment of $1900 while the $300K is about $2500.  Project that over the entire year and you'll save more than the difference in taxes.  You'll also neeed to consider the cost of living since there will be other taxes besides property tax.  You may also see differences in other costs as well.  You can use a cost of living comparison to get a better idea when you factor some of these other things into your decision (http://cgi.money.cnn.com/tools/costofliv...

However, there are about a million other reasons to choose which city to live in besides what the average cost of a home and taxes might be.  If you can afford to live in either town you need to look at quality of life, the school systems, property value trends, availability of jobs, quality of the homes, weather, access to amenities such as sports and arts, location to outdoor activities you like, etc, etc, etc.  Anything that is important to you should be thrown into the mix.