When you are applying for a home loan, you are generally concentrating on the principal and interest charges that will make up your future mortgage payment. However, there is another cost that may be harder to determine at the outset of your loan: your property taxes.
What Are Property Taxes?
Local governments require homeowners to pay a fee on their properties to help pay for the expenses of the city or county. This might include budgets for emergency services, schools, and infrastructure. Property taxes typically make up the bulk of local government income.
How Are They Assessed?
Each year a local appraiser or assessor evaluates the value of each property based on its fair market value. They determine that number based on the condition of the property along with comparisons of the sale prices of similar homes in the neighborhood. Once the assessor comes up with a fair market value, that number is multiplied by the local property tax rate. For example, if your home is valued at $300,000 and your local assessment rate is 0.85%, your yearly property taxes would be $2,550. Keep in mind that property tax rates vary wildly from state to state and region to region.
How Do They Affect Your Mortgage?
Most localities generally break up your property tax into two bi-annual payments. Exact deadlines depend on your particular local government schedule.
It is very common for homeowners to pay property taxes through their mortgage escrow account. The escrow company receives the tax bills and divides that cost equally over 12 months. They add that amount to the monthly mortgage principal and interest charges to come up with the total monthly mortgage payment. If your property taxes increase, your monthly mortgage will jump accordingly.
How to Dispute Your Property Tax Assessment
If you have any reason to believe your home’s value has been overestimated by your local government, you can dispute it and hopefully reduce your monthly mortgage costs. U.S. home prices rose dramatically over the past several years, especially during the inventory famine of the pandemic. That could have caused your property tax assessment to rise. However, many markets are starting to cool in the face of skyrocketing inflation and climbing interest rates. Your property’s value may not be quite as high now as it was a year ago.
In order to dispute your property tax assessment, you first need to do some homework. Take a look at the property assessments for the past several years to ensure that all the information is correct. Check that the square footage, number of bedrooms, and bathrooms are all accurate. Any inaccuracies could mean an easy fix and lowering of your tax bill. Next, you should contact your local assessor for a meeting where you can discuss any issues you found in the assessment.
If that meeting does not resolve your concerns, you can file an appeal on your county tax website. You might have to pay an application fee. You will then be asked to provide evidence that your property tax bill is too high. This could include real estate “comps” that show similar homes recently sold for less than your value. You may also want to present photos of your property and a list of any repairs that need to be done and an estimate of their cost.
If you prove your case before the county tax board, you may save yourself hundreds of dollars a year in property taxes. While it may take a little work, it is a common occurrence and can definitely be worth the effort.
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These materials are not from HUD or FHA and were not approved by HUD or a government agency.