Understanding Your Property Tax Bill Before You Buy
As you determine the budget for your home purchase, you may have factored in your monthly mortgage payments, PMI, and homeowners insurance, but there is another important element to keep in mind: property taxes.
How your tax bill is determined
A tax assessor may use several factors to determine a property’s taxable value, including comparable sales values, market conditions, school districts, and neighborhood amenities, among others. Generally, your tax bill is equal to a percentage of this value, based on the local tax rate. For example, if your property is assessed at $200,000 and your local tax rate is five percent, you’d multiply $200,000 by five percent to determine your tax bill for the year: $10,000. If you have an escrow account, your lender may add estimated taxes to your monthly mortgage payment and send funds directly to the tax authority on your behalf.
Factors that may affect your property tax rate
Your tax rate is the sum of the rates assessed by all applicable taxing entities, which may include a combination of state, county, and city governments, utility districts, school districts, and/or other management districts. These agencies provide services like water drainage, utility maintenance, and education services; available services and tax rates can vary widely from one neighborhood to another. You may want to research recent tax rates when considering purchasing a home and factor this cost into your budget.
For home shoppers with children, public school zoning may be integral to the decision-making process. However, since property taxes can vary by the school district, choosing a house in a particular district may require a bigger budget. In addition, school districts can also change their zoning boundaries as the population changes or new schools are built. If being assigned to a particular school is a priority, be sure to speak with the district to determine if any zoning changes are expected in the near future.
Options for lowering your tax bill
Some state and local taxing authorities offer tax exemptions for those who meet specific qualifications. An exemption removes part of your home’s value from consideration for tax purposes, lowering your tax bill. For example, if your assessed property value is $200,000, and you qualify for a $10,000 exemption, you will be taxed on a value of $190,000. Many states offer a homestead exemption for residential properties. Other common exemptions apply to senior citizens, people with disabilities, active-duty military, and veterans. Availability and criteria vary by location, so check with a tax professional or your local tax authority for more information.
If you have questions about the loan options available to you, contact an Open Mortgage loan specialist today.