How to Avoid Unpleasant Surprises on Property Taxes
Anyone who has bought a home has realized at some point that homeownership comes with many hidden costs , including unplanned repairs, taxes and insurance. Whether these things come as a shock depends on how much research you do before purchasing. As CNBC reports , 33% of new homeowners reported in a 2023 survey that their property taxes were more expensive than they expected.
Although property taxes are inevitable, they are not an unpleasant surprise. Here’s what you need to know to prepare for your taxes, especially if you’re buying a new home.
Study in advance
Whether you’re buying a newly built home or an existing one, you should gather as much data as possible about your purchase and the true cost of ownership , from property taxes to insurance and HOA fees, rather than focusing solely on the retail price.
Valerie Saunders, president of the National Association of Mortgage Brokers, recommends using the expertise of everyone from your Realtor to your attorney to your lender to your mortgage broker, as they will be familiar with factors such as the market you’re entering and how property appraisals work. in your district.
“We have so much information at our fingertips now that there is no reason not to do research,” she says.
Saunders notes that you can also find public records for your property through your county tax assessor or property appraiser. Go to your county’s website and search for your property (you may need the Tax ID number from your sales contract) to see the current assessment. For new projects, this may only count the land, meaning you can expect property taxes to be higher in the future once your home is included in the assessment.
See what your neighbors pay
If you’re moving to a neighborhood or new development where there are other homes that are at least a year old, check county records to see what taxes your neighbors pay. This may not be an accurate reflection of your future bill, especially if the area, amenities or lot size vary greatly, but it can give you a starting point for what to expect.
You’ll also want to gather information about other expenses that may add to your monthly bill, such as HOA fees, recycling and wastewater management.
Put money aside into a higher account
Saunders recommends having a plan to cover unexpected tax increases, whether it’s an income tax refund or putting money into a savings account each month.
Typically, when you buy a home, you put your estimated property taxes into an escrow account. But if your taxes are based on the land’s appraisal only at closing, the next appraisal will almost certainly be higher, and you could face an escrow shortfall. In this case, you will have to repay your lender to make up the difference.
If you don’t already have a lump sum, consider calculating the worst-case scenario (how much you think your taxes will go up), divide that dollar amount by 12, and set that money aside each month to prepare for the higher payment. . And don’t spend your savings on non-essential home improvements or purchases if you expect taxes to rise.
Understand your county’s tax preparation process.
Although each county assesses taxes differently, most reassess each year. Knowing the dates and deadlines for this process can help you plan for potential tax increases and be strategic about lowering your tax bills .
For example, any permanent structures added to your property will increase the assessment, so call your county office to get a value estimate before you build (you may want to delay building until the next reassessment). You may also be eligible for certain benefits that can reduce your tax burden.