Demystifying Property Taxes What Every Homeowner Should Know

When you buy a house, there are expenses to consider besides your mortgage payment, such as property taxes. Property taxes are levied by a local government, usually at the municipal or county level. Property taxes are generally used to pay for public education, infrastructure, and police, fire, and other emergency services.

The amount of tax is based on the value of the property, usually expressed as a percentage. The value of the property is determined by an appraisal performed or ordered by the local agency imposing the tax. You can see a chart comparing property taxes throughout the U.S. here.

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Take Time to Learn About Property Taxes

Property taxes are usually paid annually or semi-annually. You might pay them directly to your local agency’s tax collector, or, if you have a mortgage, you may pay them to your lender. If the down payment on your house was less than twenty percent, you probably pay a portion of your property taxes to the lender with each mortgage payment. If you put down twenty percent or more, you likely had the option of paying the tax collector directly or sending smaller payments to the lender each month.

If your lender collects property taxes from you, you will still receive an annual statement for your records since property taxes are deductible for many homeowners. The lender estimates how much the tax assessment will be, then adds a twelfth of that amount to your monthly mortgage payments. Each month, the lender deposits the amount you paid in property taxes into an escrow account, until the property tax bill is due. The lender will work with your local tax collector and pay them directly. The lender is permitted to collect a little extra to act as a cushion in case the tax bill is higher than expected, and any extra is supposed to be refunded to you.

Mortgage lenders care about property taxes because unpaid taxes are a superior lien as compared to the lender’s claim of deed of trust. Therefore, mortgages almost always contain a provision stating that failure to pay your property taxes results in default of the loan, which allows the lender to foreclose on the property even if you’ve been making your required mortgage payments.

If you think the tax assessor has overcharged your property taxes, there are procedures for filing a dispute. Factors to consider are whether you’ve recently purchased or updated the property, what your neighbors pay in taxes for similar properties and exemptions that you might be entitled to. If you believe your tax bill is too high, you should review the assessor’s statement as it likely contains instructions on how to initiate a dispute, including the time frame you must follow. The procedure will vary by jurisdiction, so be sure to follow the instructions for your specific area.

If you fail to pay your property taxes, the tax collection agency will eventually place a tax lien against your home. That can lead to possible foreclosure proceedings, meaning you will likely lose your home. Therefore, if you are unable to pay your property taxes, it is best to be proactive and try to work out a payment plan with the tax collector. Most jurisdictions already have programs in place to help homeowners who are having difficulty paying their property taxes.