When you’re buying a home, there’s a lot to think about: interest rates, down payments, closing costs, and much more. Property taxes are one of the factors that is often overlooked, but are still important to consider; they can make a notable impact on your monthly mortgage payments and long-term financial plan. Understanding how property taxes work can help you make a more informed choice and avoid surprises once you’re settled into your new home.
What are Property Taxes?
Property taxes are taxes paid by property owners to their local government entities, such as counties, cities, and school districts. They are put towards funding essential public services like schools, police and fire departments, road maintenance, and parks.
Property taxes are typically paid every year, but many homeowners choose to pay them monthly through an escrow account that’s managed by their mortgage lender.
How Property Taxes are Calculated
Property taxes are calculated based on the assessed value of your property, which is determined by the local assessor’s office. The assessed value may not match the exact market value of your home, but it’s typically a percentage of it.
Once the assessed value is determined, it’s multiplied by the local tax rate, often called a mill rate. Here’s a simplified formula:
Assessed Value x Tax Rate = Annual Property Tax
For example, if your home is assessed at $300,000 and your local tax rate is 1.2%, your annual property tax would be $3,600.
Factors That Affect Property Taxes
Property taxes vary pretty significantly depending on different factors:
- Location– There are different tax rates for different cities, counties, and states.
- Home Improvements- Changes to the home after purchase, like adding square footage, remodeling a kitchen, or finishing a basement, can cause your home’s assessed value to increase.
- Market Trends– Your assessment could rise if the other homes in your area rise in value.
- Local Budget Adjustments– In order to meet budget requirements for services like schools, emergency services, or infrastructure, governments may adjust tax rates. Residents may also have voted on certain measures to approve or decline proposals that could affect the property tax rates as well.
What to Know as a Homebuyer
If you’re in the market for a new home, here are some things to keep in mind when considering property taxes:
- Check Current Property Tax Bills
Ask your real estate agent or the seller of the home for a copy of the current property tax bill. This step will give you an idea of the annual cost and help you budget accurately.
- Don’t assume the Current Tax will stay the Same
When a home is sold, it may be reassessed at its new purchase price, which could lead to a higher property tax bill. Always confirm with the county assessor’s office.
- Understand the Escrow Process
Most mortgage lenders will collect property taxes from your monthly mortgage payment and hold the balance in an escrow account. Your lender then pays the taxes on your behalf when they’re due. This process can make budgeting easier in the short term, but it also means your monthly payment can increase if your taxes go up.
You can learn more about the escrow process here: https://oregonsms.com/blog/what-is-escrow/.
- Look into Exemptions
Some states and counties offer property tax exemptions for seniors, veterans, or people with disabilities. Be sure to ask if you qualify for any exemptions that could reduce your tax bill.
- Plan for Annual Adjustments
Property taxes are not fixed. They can, and often do, raise over time, especially if your local government approves new levies or bonds. You should factor this possibility in when planning your budget.
What Happens if You Don’t Pay Them?
Not paying your property taxes can lead to severe consequences like penalties, interest charges, and even foreclosure. This reason is why many lenders require borrowers to pay into an escrow account- to make sure taxes are paid on time.
Refinancing and Property Taxes
If you already own a house and are considering refinancing, your new lender will still take property taxes into account. Your escrow account may be adjusted based on updated property tax estimates, so you should review these details with your mortgage advisor.
Can you Appeal Property Taxes?
You can. If you believe your property has been over-assessed, you may have the right to appeal. This process typically requires you to provide evidence that the actual market value of your home is lower than your home’s assessed value, like a recent appraisal you received or some comparable sales data.
Check with your county’s assessor or tax office to learn more about the process and deadlines in your area.
How Strategic Mortgage Solutions Can Help
Understanding property taxes is just one part of the homebuying process, but it’s important to understand before taking any giant leaps. At Strategic Mortgage Solutions, we help clients understand every cost associated with their mortgage, including taxes, insurance, and interest. No matter what type of home buyer you are, we can walk you through the process and help you make confident decisions.
Contact our team today for personalized advice and support in your home buying venture.
