Property Taxes 101: Information for Home Buyers
Property Taxes 101: Information for Home Buyers
New home buyers often have questions about property taxes. People who have never owned a home or are new home buyers often do not know how property taxes work, why property taxes are necessary, how they are paid and other details.
Property taxes are an important part of a homeowner's duty to their community. They also represent a significant expense to some homeowners. People buying a home on a tight budget should be aware of their property tax obligation, so they can decide for themselves whether the property taxes will be affordable when the deal closes. If you're a home buyer with questions about property taxes, here's what you need to know.
What Are Property Taxes
Property taxes are annual taxes that homeowners must pay to their local government. Property taxes bring in a lot of revenue for communities, and are often used to pay for schools, roads, emergency services and the sewer. Without property taxes, many communities would struggle to pay for these services.
Typically, property taxes are managed by a government entity called the assessor's office. It is this office that home buyers and homeowners can turn to when they have questions about their property taxes.
When They're Due, How They're Paid
Property taxes are due once or twice annually, depending on the area. Home buyers who aren't sure when their property taxes are due can find out by reaching out to their local assessor's office.
Often, new home buyers pay for their property taxes from an escrow account. The money is paid in small amounts that are tacked on to every monthly mortgage payment. The money is collected by the mortgage holder and held in the escrow account until the payment is due.
This is important because many online mortgage calculators do not account for this property tax when calculating monthly mortgage obligations. This means a home buyer who has calculated how much their mortgage payment will be through an online calculator could have an under-inflated idea of their monthly mortgage obligation. Once the escrow account has enough money, the lender transmits the payment to the assessor's office. Sometimes the assessor's office will send the bill to the homeowner, who must then send the bill on to the lender. In other cases, the assessor's office may send the bill directly to the lender.
Homeowners who do not pay for their property taxes through an escrow account must pay for their property taxes on their own. When the bill arrives, the payment must be sent in by the due date.
Homeowners who pay their tax bill a little late often face minimal consequences. If the payment is made a few days after the due date, the assessor's office may attach interest to the payment due. However, if the homeowner defaults on their tax obligations, the assessor's office may take more serious action. Sometimes homeowners who do not pay their taxes lose their home to foreclosure.
How Are Property Taxes Calculated
Property taxes are calculated based on the value of the home. The size, age, condition and location of the home all can affect its value. Typically, the assessor's office will calculate the taxes due by sending an assessor to estimate the value. Once the value has been assessed, it may be a long time before the assessor returns to make another assessment.
Sometimes, homeowners can take action that can trigger another assessment. For example, homeowners who perform major renovations, like the addition of a bedroom or an attached garage, may trigger the assessment by pulling permits from the local building permit office.
Some Homeowners Are Exempt
Not all homeowners have to pay the full amount of property taxes. Some states have limited exemptions for certain groups of people. For example, some states exempt disabled veterans from certain property taxes, while other states exempt all people who are disabled. In some states, seniors over a certain age are exempt from paying property taxes or are frozen at certain rates and values.
Northwood home buyers who are budgeting to own a home should find out in advance of purchasing their house whether they qualify for any property tax exemptions. This will make it easier to budget for home ownership.
Work With Your Real Estate Professional
If you're a home buyer who is budgeting for home ownership, talk to your lender and assessor's office to find out how much your property taxes will be, and how they will be paid. Since property taxes go up as the value of the home goes up, it's important for home buyers to keep their home purchase affordable.
For more information about how you can buy a home in your price range, talk to a real estate professional. Your real estate professional can help you find a home you can afford in an area that's right for you.