Property Taxes Can Determine Buying Power On Home Purchase
This Article Is About Property Taxes Can Determine Buying Power On Home Purchase
Every homeowner needs to pay property taxes.
- Property taxes are mandatory on all properties in the United States
- Property Taxes can determine buying power for home buyers because it affects debt to income ratios
- There is no set percentage of the home value that assessors assess each home’s property taxes
- It depends on the county and the area where the subject property is located
- Property taxes do vary from state to state, region to region, county to county, area to area, as well as neighborhood to neighborhood
- For example, the town I live in, my property taxes are $10,000 per year
- A comparable home to mine just one mile west of my home in a different town, the property taxes are $2,000
- By comparable, I mean the type of home, square footage, type of construction, lot size, amenities, cost of construction, and value
Difference In Property Taxes
Why such a big property tax difference in property taxes?
- On this particular case scenario, the neighboring town has a huge dump site
- A large portion of the town’s revenues comes from the dump site
- An $8,000 price reduction in property taxes is huge
- Even if my home were free and clear of the mortgage, I would still need to pay the $10,000 in property taxes
- My neighbor down the street who has a comparable property like mine with the same market value only needs to pay $2,000 in property taxes
- Is it fair?
- Probably not but the government wants their money and they will get it
- Most first time home buyers do not really do enough research with regards to property taxes when purchasing for their new home
Property Taxes Can Determine Buying Power And Pros And Cons On Higher Taxed Properties
Property taxes among the various areas fluctuate and most times, it does not make sense.
- There is not a set percentage of the home value on how property taxes are assessed
- Many realtors will tell buyers to use a right-hand rule to figure 2% of the purchase price as a property tax estimator
- The 2% property tax rule is a general ballpark estimator but cannot bank on it
- For example, in Round Lake Beach, Illinois, a $50,000 homeowner has a $5,000 annual property tax bill
- That is 10% of the value of the home that the homeowner needs to pay every year
- If a home buyer purchases this $50,000 property, the property taxes will be more than two or more times more than his principal and interest payments
- I would seriously do some extreme due diligence on property taxes when home searching
- Consider maybe moving in neighboring towns where their property taxes are much lower
- Property taxes are not fixed
- It is normally re-assessed every three years
- Many times property taxes increase due to road repairs, building new schools, or adding police and fire personnel
- When purchasing a home, please keep in mind property taxes will gradually increase over time
How To Get Lower Property Taxes
Homeowners who are owner-occupants get a homeowners exemption by the county.
- This means lower property taxes for primary owner-occupant homeowners versus an investment home
- Many cities and counties offer a property tax freeze for senior homeowners who are 65 years old and older
- What this means is senior homeowners will have a freeze on property tax increases and/or possibly a property tax reduction
- Most counties in the United States will waive property taxes on disabled veterans who are 100% disabled
- Disabled Veterans with less than 100% disability often get reduced property taxes
For more information, check with your local county’s property assessors office.
Property Taxes Can Determine Buying Power On New Construction Homes
Home buyers buying new homes from a builder are normally assessed an initial property tax estimate for the first or two years.
- After the sub-division has been completed and the community has been established, the whole sub-division can get assessed new property taxes
- Sometimes these taxes are more than the homeowner has anticipated and new home buyers need to keep this in mind
Borrowers who need to qualify for a mortgage with a direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 262-716-8151 or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.