Purchasing a home is both an emotional and financial decision. Part of the financial decision requires you to consider mortgage payments, but don’t forget property taxes.
Most discussions and articles on buying property highlight the need for you to ascertain what you can and cannot afford in a property. The discussion boils down to what type of mortgage you can qualify for and the monthly payments you can realistically afford to make. Most people then throw in issues such as down payments, points and fees to come up with overall figures. Unfortunately, there is one other subject that needs to be included in your calculations.
You are making a mistake if you do not take into account property taxes when evaluating your financial situation. In some communities, property taxes can be significant and require some savvy budgeting so you do not get caught out when they come do. If you are squeezing by on your monthly mortgage payment or plan to, this can lead to unmitigated nightmares since you do not have the money available to pay the property taxes. Remember, most communities require the payment of property taxes in a lump sum once or twice a year.
Property taxes are dictated and controlled by counties. To keep things from getting out of control, state law typically sets a cap on the property tax that can be assessed. As you might imagine, each county charges different rates. In general, you should expect rates from one to two percent of the total sales prices of the property. For example, the purchase of a $500,000 home in an area with a one percent property tax rate would mean an annual payment of $5,000 in property taxes. If the rate in your area is two percent, you will have to come up with $10,000 on the same home. Obviously, it is vital that you look into this issue in your area and ascertain the exact rate.
How many people fail to take into account property taxes and get in trouble? Enough people that mortgage lenders habitually require borrowers to pay property taxes into an impound account as part of their monthly mortgage payment. Lenders know that borrowers are forgetful or just fail to plan for the lump sum payment, so they force you to plan for it. The only situation in which a lender will not require this is if you put more than twenty percent down.
While buying a property is an emotional decision, the real issue is your financial situation. When dealing with it, make sure you keep property taxes in mind.
About the author
Raynor James is with the site – FSBOAmerica.org – FSBO homes for sale by owner.