Mortgage deduction doesn't change the numbers by
that much. People tend to overestimate how much of the mortgage will be offset by the deduction. With a good interest rate (which you have, if you're paying $5k/mo on a 1.2M house), about 65% of the P&I payment is interest (and this declines every year). If you're earning $300k married filing jointly, your top tax bracket will be 33%. So your $5k turns into $1072 that the government basically gives you back for owning a house.
But don't forget that claiming this means giving up the standard deduction, so back up and take $12600 out of your interest for a more accurate number. Instead of 39K for the first year, it's more like $26.4k. So now you're down to $726/month saved.
That's about 14.5% saved due to the deductibility of mortgage interest. So if you could afford $1.2MM without the deduction, you can afford about $1.37 with it, which is a decent jump but it's not putting you into even a $1.5MM house.
If you're earning $300K/year, you can likely afford a 1.2MM home without too much trouble, but it depends on whether you have kids (if you live somewhere expensive, childcare is also crazy expensive), have student loans, need two cars to commute, are investing for retirement heavily, etc. $300/year can easily put a 1.2MM house at the top of the budget for many couples. I say that as someone with a family income in that ballpark and a home that cost exactly that much. I cannot imagine trying to make ends meet with a higher mortgage payment, and we don't have student loans, or a second car, or a drug habit.
But don't forget that claiming this means giving up the standard deduction, so back up and take $12600 out of your interest for a more accurate number. Instead of 39K for the first year, it's more like $26.4k. So now you're down to $726/month saved.
That's about 14.5% saved due to the deductibility of mortgage interest. So if you could afford $1.2MM without the deduction, you can afford about $1.37 with it, which is a decent jump but it's not putting you into even a $1.5MM house.
If you're earning $300K/year, you can likely afford a 1.2MM home without too much trouble, but it depends on whether you have kids (if you live somewhere expensive, childcare is also crazy expensive), have student loans, need two cars to commute, are investing for retirement heavily, etc. $300/year can easily put a 1.2MM house at the top of the budget for many couples. I say that as someone with a family income in that ballpark and a home that cost exactly that much. I cannot imagine trying to make ends meet with a higher mortgage payment, and we don't have student loans, or a second car, or a drug habit.