Property Taxes Can Determine Buying Power

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 at. Property taxes does vary from atate 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, ammenities, cost of construction, and value.  Why such a big property tax difference?  On this particular case scenario, the neighboring town has a huge dump site and a large portion of the town’s revenues comes from the dump site.  A $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 as long as I own the home.  My neighbor down the street who has a comparable property like mine with the same market value only needs to pay $2,000 as long as he owns the property.  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: 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 you 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 ball park estimator but you 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 due some extreme due diligence on property taxes when you do your home search and consider maybe moving in neighboring towns where their property taxes are much lower.  You also need to remember that property taxes are not fixed.  It is normally re-assessed every three years and 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 that your property taxes will gradually increase over time.

Property Taxes Can Determine Buying Power: New Construction

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.

Gustan Cho

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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