Real estate taxes and homeowners insurance are a major portion of the expense of purchasing a home, and you must know what these costs will run before you commit to purchase and receive financing. In addition, these expenses may vary greatly between different municipalities. By estimating the costs in different areas, you can help control your housing expenses.
Property Tax Rate
Each municipality or taxing authority has its own tax rate that it applies to properties within its area. This rate, also know as a mill rate, is expressed as a certain amount of taxes assessed per $1,000 of real estate value. This rate is set by local ordinance. This rate will vary, as most authorities reconsider this amount periodically. Local residents generally have a chance to have a say in setting the mill rate by participating in public hearings.
Tax Assessor's Valuation
With the mill rate set, the local tax assessors must have a property value to apply the mill rate towards. Assessors set the property tax value based on different criteria, depending on the locality. Some assessors use recent, comparable sales of homes within the community to establish a value. In rural areas, sufficient sales may not have occurred to establish a value in this way. In this case, the assessor may set a value based on the replacement cost of the home. Calculating the area of the home in square feet, and multiplying that area by an average amount to rebuild per square foot, establish the replacement cost. This amount will vary by the type of construction, as well as the types of materials used in the home. Other factors are also considered, such as the number of bathrooms or bedrooms. Contact your local assessor's office to determine the criteria used, and the estimated tax bill.
Homeowner insurance is based on the replacement cost of the home, similar to the tax value in many areas. Often, the homeowner insurance company uses the same databases for rebuilding costs as the tax assessors. Any premium construction features, such as a marble fireplace, will add to that replacement cost, and also add to the premiums. Your insurer will base a portion of your premium on the coverage for your personal property, often set at 75 percent of the property's replacement value. Premiums will also increase for additional liability insurance. Contact several homeowner insurance agents for comparable quotes to estimate the price.
If you are purchasing your home, and need to estimate these costs to establish the affordability of the home, ask the current owners what they pay for these expenses. Often, this is disclosed to the selling real estate agent as part of the listing process, and the information automatically passes on to the seller. Ask for a copy of the tax bill from the owners. In most communities, the tax valuation of the home is public record, and the assessor's office will give you this information if the seller will not. The homeowner can also provide information about insurance, if they choose. The same company may give you a similar rate on the home.
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