Home buying can be an exhilarating experience. But it can also be a complicated one. There are a lot of things to consider, from the liveliness of a neighborhood to the quality of a local school district. But, we’re willing to bet that affordability ranks among a home buyer’s top considerations.
When estimating your total cost of living, there’s more to consider than the mortgage. Don’t forget about property taxes, that annual fee you’ll be paying as long as you own the property. Property taxes are something every homeowner must pay, and it’s nothing to be afraid of as long as you budget for the cost and stay informed about your market. That’s where we can help.
Are you in the market for a home? First, make sure you understand how much you will have to pay in property taxes.
While the specific property taxes you face might differ significantly by the local market, there are some general rules of thumb that apply to every homeowner.
Property tax is calculated as a percentage of the appraised monetary value of a piece of property. It is collected by state and local governments in the United States and most property tax receipts go towards funding public services such as education, law enforcement, and local infrastructure.
The property tax rate (sometimes referred to as the “millage rate”) is determined by local governments. A municipality will hire a tax assessor to estimate the current market value of a property. Property tax is then applied only on the assessed value, and not on the purchase price of the home.
Property tax is usually applied only on real property, although the personal property can sometimes be subject to property tax as well. Real property is defined as land and buildings. Personal property includes items like cars and boats that might occupy the real property.
It’s important to pay attention to the expected future value of a property you might be looking to purchase as well as the property tax rates of that area. Pay attention to housing trends and expect those taxes to be higher when purchasing property in a fast-growing market or dense urban area.
Local property tax rates can differ dramatically across the United States, so it pays to do some research in advance to find the most suitable situation for you.
The Tax Foundation recently released its 2019 State Business Tax Climate Index which shows separate property tax analysis, an intuitive way to compare your state’s property taxes to others year over year. Heading into 2019, some states like Arkansas, North Dakota, Oklahoma, and Wyoming have fallen in the property tax rankings. But, if you live in states like Alaska and Delaware, expect your taxes to increase this year. The Lincoln Institute published an expansive study comparing property taxes across all states in 2017.
So, when estimating the cost of purchasing a new home, don’t forget to factor in property taxes as an annually recurring expense. Whether you’re a first-time home buyer looking for an affordable starter home, or searching for your next vacation bungalow, do your research on property taxes in your market and how they might fluctuate year over year. Understanding property taxes will make your home-buying experience much less stressful.