When you purchase a home, you may feel driven by your emotions, but you also have to be driven by your finances. This financial decision is also not just down to the price of the house and the monthly mortgage payments, but also the property taxes. You need to know how much these taxes are, as well as when to make property taxes payment. Naturally, as with all things about taxes, nothing is ever easy!
How Much Will You Have to Pay?
When you come to buy a house, it is vital that you budget so that you can determine what you can and can’t afford. However, most people look no further than the cost of the mortgage, and whether their monthly mortgage payments can realistically be afforded. Some slightly savvier shoppers will also consider things such as points, down payments, and fees, which gives them a better picture. However, they usually forget to take into consideration the property taxes.
Need to Budget for Property Taxes:
Not considering when to make property taxes payment is a grave mistake. Sometimes, these taxes are very high and you will have to budget cleverly in order to make sure you can afford them. If your monthly mortgage payment is only just affordable, you could end up with insufficient funds available to pay your property taxes. Usually, you have to make these payments either once or twice a year, which means they are quite substantial amounts as well.
Property Taxes Depend on the County:
The county in which your property is located dictates and controls the property taxes you have to pay. In order to make sure that things don’t become completely unaffordable, it is common for state laws to cap the taxes that can be assessed. That said, different rates are still charged in different countries. They tend to be expressed as a percentage of the value of your home, with normal rates being between 1% and 2%. What this means is that, on a $500,000 house, you would pay $5,000 in taxes at 1%, or $10,000 at 2%. You must, therefore, make sure that you know the rates for your county.
Requirement to Put the Money in Escrow:
So many people forget to take into consideration that they have to pay property taxes, that many mortgage lenders now demand their borrowers put money in escrow each month. This means that their monthly mortgage payment increases, and the lender puts some of that into a separate account so that taxes can be paid. Lenders know that taxes are confusing, that people tend to forget these things, and that, when it comes to money, we often have a tendency to think we’ll be able to catch up by spending less next month. In fact, only people who can make a down payment of 20% or above on their house won’t be automatically required to put money into escrow, although it is still recommended for them as well.
Yes, you should be driven by your heart and feelings when you purchase a home. However, don’t forget that what you can afford is important. If you forget something as important as when to make property taxes payment, your dream home could quickly become a nightmare.