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 800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.