Glen Ellyn vs La Grange - need Lookout Kid, Chet and JJSki's advice (Wheaton: foreclosure, mortgages)

[destination-unknown]

Originally Posted by Lookout Kid

You get federal and state tax deductions on it, so that $4,000/yr gets whittled down to about $2,800 per year, depending on what tax bracket you fall in to. You also get deductions on mortgage interest, but that slowly fades away as you pay more principal and less interest on the loan. And then again, you are "paying yourself" a bit more with a home loan, so you do get to keep some of your loan payment. It's not necessarily an apples-to-apples cost comparison.

And of course the taxes paid last year may not be the taxes paid ten years from now. Some suburbs will need to ramp up taxes more than others to deal with things like underfunded pensions. It's hard to figure out what these costs will be in the future.

But I'd rather be paying myself (with the loan interest component also being a tax deduction) than paying somebody else entirely with only a portion going towards a tax deduction.

[Lookout Kid]

Originally Posted by destination-unknown

But I'd rather be paying myself (with the loan interest component also being a tax deduction) than paying somebody else entirely with only a portion going towards a tax deduction.

Well, you do get a bigger deduction with property taxes. And in my case with a less expensive house, the extra "purchasing power" would have had to go in to a jumbo mortgage with a higher rate anyway (I have a conforming one), so it wasn't really a clear advantage. Maybe 30 years down the line.

[holl1ngsworth]

Originally Posted by destination-unknown

And while a differential of 0.5% may not sound like much, it would result in an additional $4,000/yr of property taxes for a home valued at $800,000. That's roughly $70,000 in buying power (assuming 4% rate at 30 years).

Yes, but an $800,000 house in Glen Ellyn is likely larger/nicer/better located than an $870k house in Hinsdale.

[Lookout Kid]

Originally Posted by holl1ngsworth

Yes, but an $800,000 house in Glen Ellyn is likely larger/nicer/better located than an $870k house in Hinsdale.

I think that's the primary advantage.

[JJski]

If buying a home you should always have 20% down so 200,000 on 1M home. +Some lenders indicate that a home's sale price should not exceed 2.5 times your annual salary. Following this example, if your annual salary is $75,000, you should avoid buying a home that costs more than $187,500.

So back to our big numbers mentioned in this thread… Roughly you should make 400k+ (IMO based on above) to buy a 800Kto1M home… Based on this income 4k is a drop in the bucket - - - what really matters is the location, location, location (back to cardinal real estate rule) and where that kind of investment makes sense…

Taxes suck but i don't think they are discouraging buyers in the really ultra desirable areas.

at least that is how i look at it...

[WannaBeinBoston]

So furthering this conversation, the same $800k house in Naperville, pays $16k in taxes as oppose to $20k in GE. Schools are comparably good. Now we're talking about commercial tax base in Naperville supporting the difference no doubt? I still find GE more charming, with smaller total enrollment at the schools so that holds a lot of appeal...but is is worth a $4k/year appeal?

[holl1ngsworth]

Originally Posted by WannaBeinBoston

So furthering this conversation, the same $800k house in Naperville, pays $16k in taxes as oppose to $20k in GE. Schools are comparably good. Now we're talking about commercial tax base in Naperville supporting the difference no doubt? I still find GE more charming, with smaller total enrollment at the schools so that holds a lot of appeal...but is is worth a $4k/year appeal?

Tax bills vary so widely house-to-house that it'd be foolish to exclude an entire town based on average rates. FWIW, I don't think you'll necessarily find lower bills in downtown Naperville vs. downtown Glen Ellyn.

https://www.redfin.com/IL/Naperville.../home/18076265
Price: $800k
Tax: $23k/year

https://www.redfin.com/IL/Naperville.../home/18076484
Price: $785k
Tax: $19k/year

https://www.redfin.com/IL/Naperville.../home/14170022
Price: $780k
Tax: $23/year

Agree Glen Ellyn is more charming.

[Lookout Kid]

The only real tax bargains I saw for nicer suburbs in the western burbs were places like Hinsdale, Oak Brook, and Downers Grove. I don't think Naperville would generally give any advantage over Glen Ellyn, though it depends on many factors.

[Lookout Kid]

Originally Posted by JJski

If buying a home you should always have 20% down so 200,000 on 1M home. +Some lenders indicate that a home's sale price should not exceed 2.5 times your annual salary. Following this example, if your annual salary is $75,000, you should avoid buying a home that costs more than $187,500.

So back to our big numbers mentioned in this thread… Roughly you should make 400k+ (IMO based on above) to buy a 800Kto1M home… Based on this income 4k is a drop in the bucket - - - what really matters is the location, location, location (back to cardinal real estate rule) and where that kind of investment makes sense…

Taxes suck but i don't think they are discouraging buyers in the really ultra desirable areas.

at least that is how i look at it...

The minimum 20% down payment is a myth, and it can actually be quite advantageous for the buyer (not the bank) to use greater leverage to buy a home if you don't have a high interest rate or variable rate mortgage. I highly doubt that most buyers of $1M houses are putting down $200, though many "trade up" buyers would have that home equity if they have owned a home for 20 years.

Additionally, the 3x or 2.5x household income "rules of thumb" typically apply to the amount borrowed, not the total price of the house (you can easily afford a $1M house on a $75K salary if you are putting down $950,000 cash). So in your example using the 2.5x multiplier your buyer would only need to have an income of $320,000 to buy that million dollar home with 20% down. There are many financial professionals and medical specialists who surpass this level on a single income. But of course, banks actually use a much more complicated algorithm to determine credit-worthiness.

[JJski]

LK - you are definitely an engineer...