What Homebuyers Should Know about Property Taxes
As a general rule, first time home buyers should take some time to learn about any hidden costs may be associated with owning a home. Property taxes, for example, are expenses that people should account for before buying a home. If you are about to become a first time home buyer, there is no better time than now to familiarize yourself with ins and outs of property taxes.
If you are working with a real estate agent to buy your first home, he or she has undoubtedly referred to your future monthly house payments in terms of “Principal, Interest and Taxes”. This is because your agent knows that you will likely be required to pay your property taxes in monthly installments each month along with your mortgage payment. The amount you will be required to pay in property taxes each month can vary widely depending on factors such as where you live, the value of your home, and whether you are eligible for any exemptions. A basic understanding of how property taxes are calculated is essential for anyone who plans on buying a home in the near future.
Property taxes are levied by the federal, state, or local government as a way to raise money for capital improvements, infrastructure expenditures, and costs related to running the government in general. The amount of funds needed for these expenditures changes on a regular basis, meaning that your property tax obligation may also fluctuate. For example, if a new school needs to be built, or the local police department needs funds to pay police officers, your property taxes could potentially go up. All of the applicable taxes are bundled together to create your tax rate. This rate is reflected as a percentage and is used to calculate your property tax bill each year.
Along with the tax rate, the other crucial component to calculating your property tax bill is the assessed value of your property. To determine the amount of property taxes you pay, you multiply the tax rate by the assessed value of your property after deducting any exemptions. Therefore, the assessed value of your home is an important piece of the puzzle. Each year, the local assessor will estimate the value of your home. The assessed value is estimated based on things such as the size of your home, any improvements made to the home, and what similar homes in the area have sold for recently. As a taxpayer, you do have the right to challenge an assessed value if you feel it is too high.
Before you calculate your property tax obligation, you are entitled to deduct any exemptions from the assessed value. Many states offer homestead exemptions as well as exemptions for the elderly and/or the disabled. Other possible exemptions may apply for things like using solar energy or restoring an historic home. Be sure to investigate all exemption that you may qualify for as this will ultimately lower your tax bill each year.
First time home buyers cannot underestimate the importance of property taxes. Not only will your property tax bill raise your monthly payment, but failing to pay them can cause you to lose your home altogether. A delinquent property tax bill can serve as the basis for a foreclosure lawsuit, meaning that you could be forced out of your home if you allow your property taxes to remain unpaid for a lengthy period of time.