What Every Homebuyer Should Know About How Are Property Taxes Calculated

When buying a home, it’s easy to focus on the down payment and mortgage rate, but don’t overlook property taxes. They can significantly affect your monthly payment and long-term budget and understanding how they’re calculated is key to making smart homebuying decisions.

We will break down the basics and highlight a few often-missed factors that could influence how much you’ll pay.

The Property Tax Formula
Property taxes are calculated based on the assessed value of your property multiplied by your local tax rate:

Assessed Value × Local Tax Rate = Annual Property Tax

The assessed value is determined by your local taxing authority and can be reassessed yearly or every few years depending on your location. This value isn’t always the same as your purchase price, it may be a percentage of market value or a figure set by recent local data.

Land Value vs. Structure Value
Most taxing authorities separate your property into two parts: the land and the improvements (like your home and any buildings). This matters because in many high-demand areas, land value can increase faster than the structure itself, even if no renovations have been made.

For example, if your home is in an area experiencing rapid growth or development, the land alone may account for a large portion of your tax bill. This is especially true for lots near commercial zones or in neighborhoods targeted for redevelopment.

“Highest and Best Use” Assessments
One often-overlooked factor in property taxes is the concept of “highest and best use.” This means your property may be taxed based on what it could be used for, not just what it is now.

For instance, a small home located in an area zoned for commercial or multi-family use might be assessed at a higher value because the land could potentially be redeveloped into something more profitable. Even if you have no intention of changing it, the possibility alone can drive up your assessed value and tax bill.

Tax Rates Vary by Location
Tax rates are typically set by a combination of city, county, and school district levies. Some states or counties reassess annually, while others only do so when a property is sold. Local laws may also include homestead exemptions, tax caps, or freezes that can help primary homeowners reduce or stabilize their tax bills.
Because these rules vary so widely, it’s essential to research how property taxes are assessed in the area where you’re planning to buy.

What Homebuyers Should Do
Before you commit to a property, be sure to:

  • Review recent and projected property tax bills
  • Understand how land and structures are valued locally
  • Ask if the area uses “highest and best use” in assessments
  • Factor in future tax increases based on development trends

Consult with a mortgage professional they are a core part of homeownership costs. By doing your homework and asking the right questions, you can avoid surprises and budget confidently for your next move.

To Finance Or Not To Finance

Deciding to finance a new home can be exciting, and because of that buyers tend to want to jump right in. Not so fast! Before you start searching for your dream home, you need to get pre-approved and that means applying for a loan. You will need to get things in order by deciding how much home you can afford, mapping out your expenses, gathering all of your documents and then start looking for a lender that can help you decide what loan is best for you.

Some Pros of financing a home are:

?       Buyer builds equity in the home        

?       Credit scores increase with positive payment history           

?       Mortgage interest and property taxes may be tax deductible         

?       Buyer has full control over home improvements and upgrades      

On the flip side of this, you will also want to avoid a few things, like purchasing high-cost items on credit, looking for your dream home too soon when you are not approved or asking your friends for mortgage advice.

Some Cons of financing a home are:

?       Requires upfront costs for down payment, closing fees, etc.

?       Process can be complex

?       Property taxes and HOA fees are the buyer’s responsibility

?       Buyer incurs any maintenance and repair cost

?       Typically a long-term investment

Financing a home is a significant decision that requires careful consideration. The process can be overwhelming, but with the right lender and financial plan, homeownership can be an achievable and rewarding milestone.

If you’re ready to start the pre-approval process or need expert guidance, reach out today to explore your options!

How Much House Is Too Much House: A Mortgage Calculation Guide

How Much House Is Too Much House:When it comes to finding a home, this is an exciting time. Many people love looking at houses; however, the reality is that people also need to think carefully about how much house they can actually afford. Buying a home is a big decision and for many people this is going to be the most expensive purchase they ever make in their lives. Therefore, it is important to take the time to get this decision right. There are plenty of ways for people to calculate how much house they can actually afford. With a budget in mind, this will make the shopping process easier.

The 28 Percent Rule

One of the top ways that people can figure out how much house they can afford is called the 28 percent rule. This is a simple formula that states that the house should only spend 28 percent of their gross income on expenses related to homeownership. This includes:

  • The mortgage, including the principal and interest
  • Real estate taxes
  • Homeowner’s insurance
  • Private Mortgage Insurance (PMI), if this applies
  • HOA dues

Keep in mind that this is the gross monthly income, meaning that this is before taxes.

The 36 Percent Rule

Another key rule that people need to keep in mind is called the 36 percent rule. This is a rule that states that that people should not spend any more than 36 percent of their gross monthly income on debts. This might include housing expenses (such as the ones above), loan payments (including car loans and student loans), child support, alimony, and credit card debt. Therefore, those who have more of these expenses are going to have less money to spend on a home.

Find The Right Budget For A Home

This is a short overview of how people can figure out how much house they can afford. Once people know how much they can spend each month on a home, they should be able to calculate backward to figure out how big of a loan they can actually take out. Of course, it is always important to remember that there are trained professionals who can help people figure out exactly how big of a house they can afford.