There are many great reasons to buy a home, including some of the tax benefits that come with homeownership. For instance, you can write off your mortgage interest and property taxes. In the District of Columbia, another great benefit is the Homestead Deduction. It decreases the tax liability on your home by $78,700. That means that your home will be assessed for less than its actual value and your property taxes will be calculated based on that lower amount.
Unlike some of the other deductions, you don't immediately get the Homestead Deduction; you have to qualify under the following conditions:
- You must apply with the Office of Tax and Revenue. You can do this by filling out and submitting Form FP-100. Make sure to submit this form between October 1st and March 31st to reap the benefit for the full year. If you file during tax season, you will only receive half of the benefit for that year.
- You must own and occupy the property and the property may not contain more than five units.
- The property must be your primary residence. This can be proven with a vehicle registration, driver's license or valid ID card, or voter registration. It should go without saying that the property address should be the one you use when you file your taxes.
The good news is that you only have to do this once. The approved application will automatically make you eligible for this deduction in future years!
What is my Debt-to-Income Ratio?
Your debt-to-income ratio is the amount that you pay out in bills every month divided by how much you earn every month. This seems pretty straightforward, but there are a few things that are helpful to know here. Even if you pay off your credit cards every month, only your minimum payment counts towards your DTI. Also, this calculation is made based on your income before taxes. For example, if you earn $5,000 a month and your monthly expenses including housing total $1900, your DTI is 38%.
Why is all of this important? Well, the maximum ratio that a lender can accept on a Qualified Mortgage is 45% for Conventional loans, but there are some situations when a lender would allow up to 50%. The guidelines are always in flux so stay tuned for the most up-to-date information. When crunching the numbers, take into consideration that while you may qualify for a mortgage, your monthly expenses may be higher than the debt that’s considered in your DTI.
Contact me to help you find a qualified lender that can help put you in a great home, start building equity, and still maintain the lifestyle to which you’ve become accustomed.
Flashback Friday
 *Courtesy of Ghosts of DC
Check out this photo of Tunnicliff's Tavern located on 9th and Pennsylvania Southeast from 1929. Today's Tunnicliff's is just across the street from Eastern Market. Click on the photo to see what it looks like now!
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