How property taxes affect your mortgage payment
When considering how much of a mortgage payment you can afford, you will also need to take property taxes into account. As an expense you may not have paid in the past, property taxes can significantly impact your budget and play a crucial role in your decision about where to live. If you’re thinking of relocating, it’s especially important to understand the wide-ranging property tax implications in your target area.
Property taxes can vary not only across states but also within the same state. Urban areas typically have higher median property taxes. This reflects the increased demand for public services and infrastructure in these areas, boosting the tax rates. Take a look at this interactive map of property rates across the country. If you’re on a budget, choosing a neighborhood close to the city of your choice but outside of its tax boundary may get you a lower payment for the same priced home.
As a top mortgage lender and advisor nationwide, we can help to demystify the role property taxes have in the homebuying experience. So, whether you’re planning a move to a bustling coastal city with a higher property tax rate or dreaming of escaping to a tropical paradise like Hawaii with lower property taxes, read on to learn how your property tax is calculated, factors affecting your tax bill and the best practices for paying property taxes.
What are property taxes?
As a homeowner, each year you will be charged a fee called a property tax by your local government. This tax is based on a percentage of your property’s assessed value. Property taxes are used to fund local services and projects, such as building new schools, paying for law enforcement, repairing roads and updating water systems.
How are property taxes determined?
Two key players are responsible for figuring out what you pay for property taxes: a home appraiser and your local government assessor. A home appraiser is a certified professional in the area who assesses the market value of your property based on its size, condition, location and comparable home sales. This helps establish the fair market value of the home. Once this is determined, the local government assessor applies a tax rate to your home’s appraised value to calculate the property tax amount you’ll owe. Higher property values (or tax rates) result in higher tax bills.
Keep in mind, certain situations can reduce the amount of taxes you pay. For example, exemptions are available for senior citizens or disabled individuals and deductions may apply to properties used for agriculture or historic preservation.
Use our free mortgage calculator with taxes, insurance and other expenses included in the calculation to estimate your monthly payments.
How often do tax rates change?
As a homeowner, it’s important to remember that your property taxes are not set in stone. Some of the factors that influence your property tax bill include:
Local government budgets: Your tax rates may be adjusted to meet the financial needs of local services such as roads and utilities.
Property improvements: Renovations to your property–like a new kitchen or the addition of a bedroom–can raise its assessed value, affecting your tax rate accordingly.
Market conditions: Economic shifts or changes in property values in your neighborhood can influence your tax rate during reassessment periods.
Property tax reassessments happen periodically, based on state or local laws. These timeframes can vary widely, from every year to every five years, or even longer.
When are property taxes due?
Property taxes are usually due semiannually although some cities and towns require an annual lump sum payment. Your property tax payment schedule outlines the exact due dates. Generally, your tax accessor’s office provides this information to you. Your local government’s website may also publish these dates. It’s important to be aware of your requirements and due dates to avoid penalties or late fees.
Can property taxes and mortgage payments be bundled?
Yes, many homeowners choose to pay their property taxes through their mortgage lender by using an escrow account. Each month, along with your mortgage payment, funds are set aside in your escrow account to cover your property taxes (and sometimes homeowners insurance.) When your property taxes are due, your lender uses the money in your escrow to pay it on your behalf. There are many benefits to having an escrow account:
Convenience: An escrow account simplifies your responsibilities by paying your property tax along with your mortgage.
Budgeting: When your property tax payments are spread out over the year, it’s easier to budget for the expense instead of having to make one large payment.
Peace of mind: Since your lender takes care of this task, you’re assured of avoiding late payments, which can negatively impact your credit score. Plus, you’re less likely to be charged late fees.
Less risk: Timely payments ensure you’ll avoid tax liens on your property, which can lead to legal issues and potential foreclosure.
At Guild Mortgage, we prioritize the financial security of our customers by conducting an annual escrow analysis. We thoroughly review your deposits and expenses for the previous year as well as the projected activity for the next year. This level of service ensures you’ll have coverage for your property taxes and a cushion for any unanticipated expenses. Plus, if you have a considerable surplus in your escrow account, we may even provide a refund.
Whether you’re thinking of moving around the corner or across the country, take the first step and connect with a loan officer at Guild– they can provide valuable insight and guidance on navigating every aspect of homeownership.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.