How Property Taxes Impact Mortgage

How Property Taxes Impact Your Mortgage

When buying a home, property taxes are one of the expenses that can make a significant difference in your monthly payment. Do you know how much you might pay for property taxes?

Get the Details on Texas Property Taxes

Texas has no state income tax, so property taxes take up the slack. Taxes vary by city, school district, and other factors.
When applying for a mortgage, you’ll see one of two acronyms in your paperwork – P&I or PITI – depending on if you’re including your taxes in your mortgage payment, thus creating an escrow account.

P&I stands for Principal and Interest. Both are parts of your monthly mortgage payment that go toward paying off the loan you borrow.

PITI stands for Principal, Interest, Taxes, and Insurance. These are all important factors to calculate when you want to determine exactly what the cost of your new home will be. In this case, the lender is collecting money to pay future taxes and insurance when they become due. This is commonly known as an escrow account.

New Construction Has Special Concerns

taxes impact mortgage payments in new construction, too

Construction Workers Looking at Roof

If you’re buying new construction be sure you understand the basis of your taxes the first year. Often the tax is based on unimproved property, land only, prior to construction.

This can create a shortage in your escrow account and the lender will increase your payments to make up for the shortage.  This oversight alone has forced home buyers into financial problems with catastrophic results, even foreclosure. Don’t let this sneak up on you!  That’s another reason you need an experienced real estate professional (shameless plug, hire us 🙂.

All States Tax Rates

TaxRates.org defines property taxes as,

“A municipal tax levied by counties, cities, or special tax districts on most types of real estate – including homes, businesses, and parcels of land. The amount of property tax owed depends on the appraised fair market value of the property, as determined by the property tax assessor.”
It shows you tax rates by state. This organization also provides a map showing annual property taxes by state from lowest to highest. The numbers are reflected as a percentage of median home value.

The top 5 states with the highest median property taxes are New Jersey, New Hampshire, Texas, Nebraska, and Wisconsin. The states with the lowest median property taxes are Louisiana, Hawaii, Alabama, and Delaware, followed by the District of Columbia.

Want to know more? Take a look at the details straight from the Collin County Tax AssessorDenton County Tax Assessor, Dallas County Tax Assessor,
  Tarrant County Tax Assessor. 

Conclusion

Property taxes can have a big impact on your monthly payment. Make sure your estimated taxes will fall within your budget.

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