If you have a home mortgage, taxes are wrapped into your monthly payments. You may not even know exactly how much you’re paying as the months go by. However, when you’re buying a new home, property taxes are an important consideration. They’ll let you know exactly how much will need to come out of your monthly budget to pay for that house. But you can easily estimate how much you’ll pay each month, whether you use one of the many online calculators available or you divide it up manually.
To estimate taxes on a mortgage, first find out what past owners of the property paid in taxes or get the current property tax rate for the area and calculate it based on the home’s assessed value.
Mortgage Estimate with Taxes
The first step toward determining how much your taxes will be is to determine how much they currently are. If you’re buying a used home, this will be fairly simple, since you’ll merely need to look up the property tax history. This information is public record, but you do need to know where to look. Some real estate sites display property tax information on a house’s listing, usually toward the bottom of the page. However, if you’re buying a brand-new home, or you can’t find the information you need, you may have to dig a little deeper.
The tax collector’s office for each county maintains records on property taxes paid by residents. Luckily, you can often get this information online via a web portal, as long as you have the street address of the property in question. If your county doesn’t have the information online, you may have to pay a visit to the offices and request it in person.
Property Tax Estimator for New Construction
If you’re moving into a newly constructed home, things get a little more complicated. There is no property tax history for that location and, even if there is, you’ll likely find that it’s based on when the lot was empty, not when it contained a residence. You can get a rough estimate on the cost based on the current appraised value of the property since taxes are based on value. This may not be a number you can bank on, but it will at least give you a general idea.
Another way to estimate property taxes on new construction is to look at similarly priced homes in the same area. If your home is being built in a community filled with houses of the same size and in the general price range, you may be able to look at one or two that have been occupied for a while. Then you can adjust upward or downward based on how the other house is priced in comparison to the one you’re buying.
Calculating Property Tax
The property tax figure you’re given will probably be expressed as an annual figure. This means you’ll need to divide it by 12 to get the number you can expect to pay monthly. Unless you’re paying cash for your home, this amount will be bundled along with your mortgage principal, interest and homeowner’s insurance for a monthly lump sum. Your mortgage company will hold the funds in escrow to pay those expenses on your behalf and at the end of the year, you’ll either be billed for an escrow shortage or get an amount back if you overpaid.
Online calculators can also give you an idea for what you can expect to pay. Since property tax is specific to local jurisdictions, you’ll need to look for a local property tax calculator that covers your own area. Often local government offices will provide a calculator online, especially if you live in a larger city. If you’re working with a real estate agent, he’ll probably have a tool that will help him estimate what you can expect to pay.
Keeping Up with Fluctuations
One thing is certain: property taxes will not remain the same during the time you’re in a house. Multiple factors can shift the amount you owe upward and downward, including inflation and the local housing market. When demand is high, for instance, property values increase as people are willing to pay more for the homes that are available. You won’t see this uptick immediately since property is only assessed on a periodic basis. But when your property’s value is registered as having increased by county officials, you’ll start to see your tax bill go up.
You’ll also see a tax increase if you make significant improvements to your home. The county knows about these because any professional you hire will need to pull a building permit to do anything major. If you’re simply painting your bedroom or changing the landscaping, you probably won’t interact with the county to do so, but when the assessor looks at your property the next time around, any visible improvements will drive the value of your home, and therefore your property taxes, up.
Property Tax and Local Property Values
As you’re looking at how to calculate taxes on a mortgage, it’s important to keep in mind the properties that surround you. If you’ve bought in a hot area of town, chances are you’ll see your property taxes rise in the years to come. The very things that drew you to the area are the same things that will bring others around as well. That pushes property values up, which also means higher property taxes.
If, however, you’re interested in deliberately choosing an area in your region that has low property taxes, you can access that information online. Hawaii, Alabama, Louisiana and Delaware have the lowest property taxes in the nation, while Connecticut, New Hampshire, Illinois and New Jersey have the highest. But if you can’t relocate to another state, you can still look for a part of your own town that has lower property taxes than other areas.
Homeowners' Insurance Costs
Property tax won’t be the only expense added to your monthly mortgage bill. You’ll also need to pay homeowners’ insurance on your property, along with any special insurance required for the area in which you live. If you live in a flood zone or an area prone to sinkholes, you’ll need separate insurance for those events. You also may have extra riders to cover your property for events that aren’t covered on a normal insurance policy. Although this amount will be bundled into your insurance bill, you have the right to choose your homeowners' insurance policy, which means you can shop around to get the lowest prices.
Knowing the estimated taxes and insurance on mortgage is key to determining what your monthly payment will be. This can vary based on location, but the national average for a homeowners’ insurance policy on a $200,000 home with a $1,000 deductible and $100,000 liability coverage is $1,228 per year. This is an additional $102 per month tacked onto your mortgage payment.
Property Tax and Vacant Land
Investors often purchase property with nothing on it with plans to wait for it to appreciate and make a profit. You may also buy a vacant lot with the intention of eventually building your dream home there. Whether you pay cash or take on an additional mortgage payment, property tax is part of owning property, even if it’s just land.
The good news is you’ll pay much less for empty land than you would if a home was on it. But county assessors calculate the value of vacant property just as they do with other types of land. How much you pay will depend on the location, with premium property commanding a much higher dollar amount. If you own land on the beach or a lake, for instance, you’ll find your tax burden is higher than if you own property in a less in-demand area.
Estimate Property Tax on Empty Lot
To determine the property tax you’ll pay on your empty lot, it helps to first know the value of that property. Redfin lets you pull a list of sales comps for vacant properties. A popular real estate term, “sales comps” refer to the value of comparably priced homes nearby. You can filter those comps on Redfin to show only land sales and narrow down to a nearby area. This will give you a figure that you can apply local property tax rates to in order to determine what your monthly tax will be.
Another way to estimate property tax is to have an appraisal done on the land you’re buying. If it’s been assigned a purchase price, this appraisal may have already been done. At the very least, you can use the purchase price to get a ballpark figure as to how much you can expect to pay. Then you’ll need to determine the assessment rate for the property in question, which is information you should be able to obtain either online or through your local county offices.
Appealing Property Value Decisions
You may have run a few numbers through a mortgage estimator and gotten a rate that’s reasonable. However, the assessed rate of that property can be completely different from the market value. In other words, you may have offered $200,000 on the property and even had a property appraiser come in to sign off that the property is worth that amount. But if the county appraiser says it’s worth $220,000, you’ll pay property tax on $220,000.
The problem is, county appraisals only happen every few years in most places. This means your property can increase in value without repercussions for a while. However, it also means that your property could drop in value with no credit for it for a long time. You can appeal the valuation that the county places on your property and sometimes have it lowered. But often you’ll find that the difference is in your favor since the county doesn’t know about the interior nuances that increase what someone will pay for your property, such as the paint you’ve used on the walls and the blinds you’ve hung on the windows.
Reduce Your Property Taxes
If you feel like your property taxes are too high, there are things you can do to lower them, including launching an appeal. If you go that route, you can request a copy of your property’s assessment from your local assessor’s office. You can then appeal for a correction on any inaccurate information you find there. If you’re home when the assessor arrives to survey your property, you may be able to have more control over the process by answering any questions or pointing out those things about your house that are outdated and, therefore, lower its value.
You can also keep your property taxes low by keeping a lid on improvements, at least until you’re ready to sell. Before you add a room onto your house or put in a pool, make sure you’re fully aware of how much value this will add to your home. In addition to the cost of having the changes made, you’ll also need to keep in mind that your monthly mortgage payment will likely get a slight increase, as well, thanks to property taxes.
- Realtor: How to Calculate Property Tax Without Losing Your Marbles
- Architectural Digest: 6 Things That Might Make Your Property Taxes Go Up
- WalletHub: 2018’s Property Taxes by State
- Insurance.com: Average homeowners insurance rates by state
- REtipster: Did You Know Redfin Could Do This??
- LotNetwork: Understanding Property Taxes
- Appeals - Property tax
- Many municipalities allow you to search for your property’s appraised and assessed values online for free using your address or other information. Some also provide free tools and calculators to estimate your property taxes.
- Some municipalities offer exemptions to certain homeowners, such as those over a certain age or those whose home is their primary residence. An exemption reduces your property’s taxable value, which reduces your annual property tax. Ask your assessor’s office if you qualify for any exemptions.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.