When buying a home, property taxes are a significant expense that needs careful planning. Here's how to incorporate them into your homebuying budget:
1. Understand Property Taxes in Your Area
- Research property tax rates in the area you’re considering. Rates can vary significantly by city, county, and state.
- Use the local tax assessor's website or a real estate listing to estimate annual taxes based on the property's assessed value.
2. Estimate Your Annual Property Tax Bill
- Multiply the property’s assessed value by the local tax rate. For example, if a home is assessed at $300,000 and the tax rate is 1.25%, your annual property taxes would be $3,750.
3. Account for Changes in Tax Rates or Assessments
- Property taxes may increase over time due to changes in tax rates, re-assessments, or home value appreciation. Plan for potential increases by adding a cushion to your budget.
4. Include Taxes in Your Monthly Budget
- Most lenders require property taxes to be paid through an escrow account as part of your monthly mortgage payment. Divide the annual tax by 12 to get the monthly amount.
- Example: $3,750 annual taxes = $312.50/month added to your mortgage payment.
5. Check for exemptions or discounts
- Some states offer property tax exemptions for certain groups, such as seniors, veterans, or first-time homebuyers. Research eligibility for any applicable programs.
6. Verify with Your Lender
- Ask your lender for a breakdown of your estimated monthly mortgage payment, including principal, interest, property taxes, and insurance (PITI).
7. Plan For Closing Cost
- At closing, you may need to prepay a portion of the property taxes for the year. Ensure you budget for this upfront expense.
8. Reassess after Purchase
- Once you own the property, monitor your annual tax bill and adjust your budget as needed. Appeals may be possible if you believe your property is over-assessed.
Would you like to know about any specific tax exemptions or calculators?
Follow us here at Revilo Real Estate and in our Social Media pages Facebook, Instagram and LinkedIn.