Can I afford a million dollar home???

Question

My wife and I make roughly $150,000 a year. I'm in sales so I get taxed around 30% and my wife 20%. This adds up to around $50,000 of taxes paid. Here's my real question. If I bought a house that has interest only payments of around $4000, do I get all that back??? Thanks for any help.

Answer 1

If you say you and your wife pay around $50,000 of taxes based on income of $150,000 then your tax rate is 33%. I don't know whether you are talking only federal taxes or federal and state. If it's federal only than you would get a 33% tax break on the interest only payment. I'm assuming that the $4,000 is per month, which would add up to $48,000 over the course of the year, and 33% of that is $16,000. The question is do you really want an interest only loan. You are paying only the interest on that type of loan, the principal doesn't get paid until you either sell the house, or the loan matures, and you have an enormous principal payment, since you are asking if you can afford a million dollar home.

Answer 2

One million dollars is a HUGE amount of money. From the sounds of it, your cousin isn't in the OB field yet. You need much more than a BA to practice as a Dr. Does she have a job in the mean time? It will take her a long time before she makes a decent salary was a Dr. You probably make about $1,500 a month... My husband and I are renting in the 2nd most wealthy county in the country and all decent sized homes are around 1 mil. Townhomes in this area go for 500K as well. If we were to get a loan for a townhome and put a $32,000 downpayment (not including closing costs), we'd be paying at least $2,000 a month, not including property taxes. So double the the 2K, add the property taxes, and you've got a million dollar home! Oh, and don't forget the utilities! So, can you afford it? Honey, I'm sorry, but I don't think so. It's not that easy. You can find something much less expensive and make it a home. Good luck!

Answer 3

On $150K income, you can't afford a million dollar home unless you have about $400K or more for a down payment.

Interest only mortgages, even if you could get one which would be doubtful, can be a recipe for disaster, since you are building NO equity, and eventually you have to start paying more than just interest. In a rising housing market, you can do OK with one - but in most places recently, markets haven't been rising.

But from a tax standpoint - no, you don't get the whole amount back of interest that you pay. You save a percentage of it on your taxes, as much as the interest times your tax bracket.

Answer 4

That depends. Your mortgage interest is an itemized deduction. Because you are married your standard deduction is about $10,000 for both of you. The question is, Itemized deductions vs. the standard deduction, which ever is the greater amount is what you should take. So add your mortagage interest ($4000) with any charitable contributions, some DMV fees, medical expenses over 7.5% of your income, property taxes, tax prep fees, unreimbursed employee expenses( there are a lot of rules here) if all of these things add up to more than your standard deduction then your house will have made a difference. If not then no.

Answer 5

You don't get your interest back, but you do get to write them off against your gross income, but there may be limitations in your income bracket. Consult a CPA.

In general, depending on your total monthly debts, you should not buy a home for more than 4x-5x your GROSS annual income.

$750K may be more affordable for you.
Qualifying for the loan may be a bit tricky if you have commission income. It's not based on income alone.

Also depends on your credit score and down payment, and 20 other pieces of the puzzle.

As PAUL stated, there is NOTHING wrong with an interest only loan, as long as you understand them. Most people are ignorant about this subject, and don't want to learn.
Your home will go up or down regardless of what you owe on it, and with inflation, you will pay back with cheaper dollars.

It is a bit of a gamble, but Paul did his homework and decided it was for him. Only you can decide what is right for you. But it is is poor advice by many to generalize that interest only loans are bad.

Just understand your options.

Answer 6

Here's the way it works:

When you own a home, the property taxes and interest payments are tax-deductible. If you're paying 30% in taxes, this means that 30% of that $4,000 comes back to you as a refund. In other words, the government pays you $1,200 a month to own your home. That's about $14,400 a year ($1200 x 12).

But, you say the interest payments come out to $4,000. What about the property taxes? In California, this is about 1% of the value of the home. That's $10,000 a year on a new home or about $833 a month. At 30%, you would get back $3,000 of that back on your taxes.

Of course, that's just federal. If you have state taxes (California is about 12%), you would get back another $7,000 or so at the end of the year.

So no, you wouldn't get the $50,000 back. You would get more like $22,000.


By the way, despite what these other answerers say, there's nothing wrong with an interest-only loan. I'm currently in an interest-only 10/20 on a $790K loan for a $960K house. That means I pay interest-only fixed-rate for the first 10 years and then it reverts to a 20-year fixed that's fully amortized.

My mortgage broker is a long-time friend and financial analyst. We recently calculated how much money it costs to pay off a fully amortized loan versus this 10/20 loan. Over the life of the loan, it saves about $280K, mostly because of the tax savings by paying interest only for the first 10 years.

You can also pay into the balance of an interest-only loan at any time, reducing your monthly payments. For example, my wife and I own a condo that is worth about $450K right now. In 10 years, maybe it will be worth $600K and we only owe $280K on it. So, if we sell it within 10 years, we can take the proceeds and pay down our mortgage balance significantly before it becomes fully amortized, significantly reducing our monthly payments. If you pay down the balance on a fully amortized loan, the monthly payment stays the same. It just gets paid off faster.

Also, with a fully-amortized loan, the amount you pay in interest goes down each month, as more is paid to the principal. For the first couple years, this is negligible. But, as you pay for a few more years, the amount of deductible interest paid begins to drop significantly. And, you start to get significantly less back on your taxes each year.

So, don't be afraid of an interest-only loan. But, get a fixed rate that isn't going to jump suddenly, to some monthly amount that you can no longer afford. That's where you can get yourself in trouble.

Answer 7

With $250,00.00 down on an "I" only loan you're close. But you'll never qualify w/o at least 20% down. Minus all of your other bills-car payment, credit card payments that factor in your debt-to-income ratio, they'd have to be "0". I did it with 25% down.

With all the factors in real-world finance, and in today's market of borrowing, I'd say you'd not get the loan at a rate that would let you qualify. Yes, you can write off the interest, but your too high on the price of the home. In addition, an I only loan scares a lot of lenders, as it is too easy to walk away if the home loses value. Plus taxes and insurance, too. This is not going to happen.

Principal Loan Balance: $750,000.00
Annual Interest Rate: 8%
Amortization Length: 30 years

Calculated Summary of Payments and Interest
Monthly Payment: $5,503.23
Total Interest: $1,231,162.80
Average Interest each Month: $3,419.90

Answer 8

No, you don't get 'all that back'. You get to use the interest paid as a deduction to reduce your taxable income. Hence, at best, you will get 30% of it back in the form of reduced income taxes. The same applies to any property taxes you pay on the house. And that 30% is being generous, since you don't get anything extra back except that which you are able to deduct OVER the standard deduction.

Answer 9

Do you have a million dollars?

Well, no, you don't, but you should never buy anything unless you're sure you're going to be able to pay for it. And never, ever, ever finance something that expensive (or even something inexpensive) with an interest only payment plan. If you are only paying interest and not on the actual cost of the house, you will pay nothing but interest forever and never pay off the house. I'm not sure what you mean by "do I get all that back?" Interest is the price a lender charges for you to use their money. So... no you won't get it back. You used their money and paid them for it, and that's that. I think you really need to educate yourself on the way mortgages, loans, and interest work (from a more reputable source than Yahoo!Answers) before you even think about buying a home. And never enter into an interest only payment plan. This is known as predatory lending, a way for lenders to sink you deeper and deeper into debt so that you never get out and pay them lots and lots of money.

Answer 10

You can barely afford that expensive a house.. Start at about 650,000.. that should be nice enough( unless u live in CA).. wait 6 years, then trade up-as long as your net income keeps rising