There are a lot of costs to consider when buying a home, but a big one that is often overlooked is property tax. Depending on the tax rate in the town or city you’re purchasing in, property taxes could be a real game changer.
Property tax rates and assessment policies will vary by community, so it’s advisable to do some research.
Some good questions to ask include:
What are the current taxes on the property?
One way to get a rough idea of the home’s property tax is to multiply the community’s tax rate by the value of the home. For instance, if the home’s value is $200,000 and your local tax rate is 1.5%, your property taxes would be $3,000 annually. There is the potential, however, that other assessments and fees could be part of the property taxes as well, so it’s wise to check with the tax assessor to see what those might be. The local tax assessor’s office is usually your best bet for finding the most accurate and detailed information regarding the home’s property taxes.
Another option is to talk to your real estate agent. They can usually provide a tax estimate for you, and may even be able to provide you with the exact amount that the current owner is paying. But even if you know the current property tax on the home, you should keep in mind that if the property undergoes a tax revaluation, or the tax rate increases, you could find yourself faced with a higher tax bill than the current owner has.
When will the home’s value be reassessed?
A tax assessment, or property revaluation, is the process the tax assessor takes to determine the current fair value of the property. Some towns and cities only reassess property values when homes are sold or remodeled, while others conduct community-wide assessments on a regular basis, such as every five years or so. A reassessment can lead to a higher tax bill if the assessor determines that the property’s value has increased.
Is a tax hike a strong possibility in the near future?
If there’s been talk of a major tax increase in the community you’re looking to purchase in, chances are it’s been mentioned in the newspaper, the local television news, or even social media. Property taxes are essential for funding local governments and schools, so if there’s been talk of building a new school in the community, or there are other major government projects on the horizon, it’s possible that a tax rate hike is being considered. Do a little digging to help get ahead of any potential rate increases before you buy, so you aren’t blindsided later on when your tax bill arrives.
Is it possible to reduce the tax bill?
While being faced with a higher property tax bill is never a pleasant experience, most communities offer an appeals process that homeowners can turn to if they believe their property hasn’t been accurately valued. Additionally, many communities offer exemptions for qualified homeowners that could reduce their property tax bill. One common exemption is the Homestead Tax Exemption, which removes part of the home’s value from taxation, resulting in a lower tax bill. Property tax exemptions vary by community, so check with the local tax assessor’s office to see if you might qualify for one.
How do I pay property taxes?
In most cases, how you pay for property taxes will depend on your mortgage lender. Some lenders allow you to pay your own property taxes directly to the tax assessor, while other lenders require you to establish an escrow account. Under an escrow account, the lender estimates the property taxes and the borrower then pays 1/12 of the estimate each month. Basically, the borrower pre-pays the property taxes to the mortgage lender, and the lender makes the lump payment to the tax assessor when the bill comes due. Escrow accounts can usually also be set up to include payment of homeowners insurance and other related costs. Escrow payments usually are included in the monthly mortgage payment. Once you have a good idea of what your annual property tax amount will be, you can use a Mortgage Calculator to estimate what your monthly mortgage payment could look like, including property tax.
There’s a lot to be excited about when buying a new home, but don’t let that excitement sidetrack you from considering all the costs associated with a home purchase.
Property tax rates and assessment policies will vary by community, so it’s advisable to do some research.
Some good questions to ask include:
What are the current taxes on the property?
One way to get a rough idea of the home’s property tax is to multiply the community’s tax rate by the value of the home. For instance, if the home’s value is $200,000 and your local tax rate is 1.5%, your property taxes would be $3,000 annually. There is the potential, however, that other assessments and fees could be part of the property taxes as well, so it’s wise to check with the tax assessor to see what those might be. The local tax assessor’s office is usually your best bet for finding the most accurate and detailed information regarding the home’s property taxes.
Another option is to talk to your real estate agent. They can usually provide a tax estimate for you, and may even be able to provide you with the exact amount that the current owner is paying. But even if you know the current property tax on the home, you should keep in mind that if the property undergoes a tax revaluation, or the tax rate increases, you could find yourself faced with a higher tax bill than the current owner has.
When will the home’s value be reassessed?
A tax assessment, or property revaluation, is the process the tax assessor takes to determine the current fair value of the property. Some towns and cities only reassess property values when homes are sold or remodeled, while others conduct community-wide assessments on a regular basis, such as every five years or so. A reassessment can lead to a higher tax bill if the assessor determines that the property’s value has increased.
Is a tax hike a strong possibility in the near future?
If there’s been talk of a major tax increase in the community you’re looking to purchase in, chances are it’s been mentioned in the newspaper, the local television news, or even social media. Property taxes are essential for funding local governments and schools, so if there’s been talk of building a new school in the community, or there are other major government projects on the horizon, it’s possible that a tax rate hike is being considered. Do a little digging to help get ahead of any potential rate increases before you buy, so you aren’t blindsided later on when your tax bill arrives.
Is it possible to reduce the tax bill?
While being faced with a higher property tax bill is never a pleasant experience, most communities offer an appeals process that homeowners can turn to if they believe their property hasn’t been accurately valued. Additionally, many communities offer exemptions for qualified homeowners that could reduce their property tax bill. One common exemption is the Homestead Tax Exemption, which removes part of the home’s value from taxation, resulting in a lower tax bill. Property tax exemptions vary by community, so check with the local tax assessor’s office to see if you might qualify for one.
How do I pay property taxes?
In most cases, how you pay for property taxes will depend on your mortgage lender. Some lenders allow you to pay your own property taxes directly to the tax assessor, while other lenders require you to establish an escrow account. Under an escrow account, the lender estimates the property taxes and the borrower then pays 1/12 of the estimate each month. Basically, the borrower pre-pays the property taxes to the mortgage lender, and the lender makes the lump payment to the tax assessor when the bill comes due. Escrow accounts can usually also be set up to include payment of homeowners insurance and other related costs. Escrow payments usually are included in the monthly mortgage payment. Once you have a good idea of what your annual property tax amount will be, you can use a Mortgage Calculator to estimate what your monthly mortgage payment could look like, including property tax.
There’s a lot to be excited about when buying a new home, but don’t let that excitement sidetrack you from considering all the costs associated with a home purchase.