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Property Taxes & Your Mortgage: What You Need to Know

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Property Taxes and How They Can Affect Your Mortgage

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Everyone who owns or occupies property pays property taxes, but the rules and amount vary widely from state to state. In fact, this is usually the main source of local government funding and is generally based on the home’s value. How much you’ll pay and how these taxes get paid is often a source of confusion to homeowners, particularly first-time homebuyers. For instance, you may be wondering “do I pay my property taxes as part of my mortgage?” Let’s break it down.

Figuring Out How Much You’ll Likely Pay in Property Taxes

It’s important to think about how much you’ll likely pay in property taxes, as well as other required payments, before you buy a home to make sure it really is within your budget.

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    To determine your property tax, a local tax assessor will establish the tax rate for where you live and that amount will be multiplied by the value of your home.

    So, for example, if your home is deemed to be worth $200,000 and your local tax rate is 1.5%, your property taxes would be $3,000 annually (or $250 each month, which is what you’ll pay into your escrow account — more on that in a minute). Keep in mind, there may be other fees or assessments that are applied to your property taxes as well, so this would be an approximate estimate and it’s a good idea to check with your local county tax assessor for more information. The rates and fees may also change over time, which will affect your taxes.

    Paying Your Property Taxes

    Now that you’ve figured out an approximate amount you’ll be paying on your taxes, you may be wondering how you’ll pay on those taxes.

    If you are still paying on your mortgage, you likely have what is referred to as an impound account or escrow account. This account is set up by your mortgage lender as part of your loan paperwork. Each month, your mortgage lender collects required insurance payments (like homeowners insurance) and tax payments from you. These payments go into your escrow account and will be used to pay your property taxes and insurance when they’re due. While these payments are collected at the same time as your monthly mortgage payment, making it feel like they’re part of your mortgage, they are technically separate.

    Once your mortgage is paid off, your process of paying property taxes will likely change a bit. You will still be responsible for paying your property taxes, only now you’ll be in charge of paying them directly to your county tax collector (or whichever government office is in charge of property taxes in your area) on your own instead of having them added to your escrow account.

    Why Mortgage Lenders Are Interested in Property Taxes

    If you are in the process of buying your home and taxes are brought up, or your lender has contacted you about property taxes, the first question you might be asking is why lenders even care about taxes. The reason is that unpaid property taxes are a superior lien to the rights of the lender. If a lender gets the property back through foreclosure, there are likely going to be unpaid property taxes that the lender is going to have to pay, which, of course, lenders don’t want to do.

    That’s why almost every loan contains a provision that you will pay the property taxes when due and that the failure to pay the property taxes is an “event of default.” This means that if you are delinquent on taxes, your lender could, theoretically, foreclose on your property even if you have been making all of your mortgage payments on time.

    Property Tax Service Fees

    When you get your mortgage, one of the things you’re charged for as part of the closing costs is a “tax service fee.” This pays for a tax service agency to go to County Offices and collect information about tax delinquencies and notify lenders about these late, unpaid taxes. If you’re paying into your escrow account, this agency is also responsible for providing your lender with your property tax bill so it gets paid on time. If your payment is late, your lender will likely charge you for your property taxes as well as additional penalties and/or fees.

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      • Tammy

        Can I refuse them to add it to loan after 9 years they sent a letter saying they are going to add taxes to payment it raises my pmt 900 a month and I was late on last year 2 pmt due to my husband in hospital with brain cancer

        • Gerri Detweiler

          I am so sorry to hear what your family has been going through. It sounds like what happened was you use to pay your taxes yourself, but then you were late paying your taxes and so your lender is now requiring an escrow account. Is that correct? If so, it is probably permissible. It’s for the lenders protection as well as your own. If the taxes are not collected on time than the property could be at risk. I know that may make it extremely difficult for you to budget, but the taxes do need to get paid one way or another.

          It sounds like your mortgage payment is too high. In that case I would recommend you consider talking with a HUD- approved housing counselor.

          You can also file a complaint against your mortgage servicer with the Consumer Financial Protection Bureau by calling (855) 411-CFPB (2372), but I’m not sure if that will help because I believe the lender’s actions are probably typical in this kind of situation.

          • Jose

            Can i claim property taxes(1098)to my income tax return?

            • Gerri Detweiler

              Jose – Here is IRS information on deducting property taxes.

              • Ed

                Gerri, it is because of advice like yours that people continue to pay property taxes they do not need to pay. check the constitution of your state to ensure that there is no homestead clause. I’m sure you will find one there. People cannot lose their homestead it is sovereign. Please check the law before giving advice. People have been lied to by everyone and so they believe the lie. Most people don’t even know they are actually perpetuate malfeasance of the government. Give people advice that you know is from research and not just hand me down misinformation.

      • Gerri Detweiler

        I know it seems harsh, but if the taxes aren’t paid you will lose your house, and since the bank has the mortgage they are simply trying to protect the money they have lent you. Before you pack up please talk with a HUD housing counselor and a bankruptcy attorney. There may be options so get advice from both. Truly sorry to hear of your difficulties.

      • Credit Experts

        That will depend on so many factors it’s hard to tell you. How long will you stay in Buffalo? Do you know the area well enough to choose a house and neighborhood you will like? How much appreciation is likely? And so forth. In general, it can be a good idea to rent first in a new city and then decide if you want to commit to buying. If you buy and don’t stay long, the transaction costs can make ownership more expensive. It also sounds as if you don’t have much of an emergency fund or down payment, and you’ll want those in place before buying.

      • Gerri Detweiler

        Yes. Your lender performs an annual escrow analysis. At that point it should change, but you can ask them if they can reconsider earlier if there is a change in your tax status.

      • mercedes

        So I pay property taxes included with my mortgage payment. Why do I get a bill saying that I owe the city 1200 dollars

        • Credit Experts

          Check with your mortgage holder to see if that bill has been paid. In some cases you will receive a bill even though your mortgage holder pays it.

      • Gerri Detweiler

        Thanks for your question. We have turned it into an article here: What to Do If Your Bank Doesn’t Pay Your Real Estate Taxes

      • M&T

        My husband and I had bought our first home in the fall of 2011, and were told at closing that the mortgage had been sold to WFHM and we would be making our payments to them. We moved in and began making our monthly mortgage payments. After about three or four months we received a letter from WFHM stating that the home was in a flood zone hazard area and that we would be required to purchase a lender based flood insurance if we didn’t find another that was ‘acceptable’ to them. After reviewing our original loan documents we found that the home was not located in a flood zone, and even went to several local insurance companies that showed us the home was not in a flood zone, so we submitted these documents to WFHM, only to be told that those documents were unacceptable and that we would have to pay to have the flood zone re-assessed. We contacted our loan originator and obtained a copy of the original flood cert. stating that the home was not in a flood zone, and also contacted the original appraiser. They told us that they had made a mistake and the home did reside in a flood zone, but did not find out until 3-4 months after closing. On the advise of the real estate agent that sold us our home, we put the home up for a short sale, at the time we thought we had no other options, and it sold the following year. We didn’t find out until almost two years later, when we tried to obtain another home loan, that the home was on our credit report as a foreclosure and had significantly dropped our credit scores. My question is this; When (if) we are able to qualify for another home loan, is there any way that we can prevent WFHM from buying our new loan?

        • Gerri Detweiler

          The short answer is no, you don’t have control over that process. But in the future, you do have rights when it comes to servicer errors and if something like that occurs again I’d suggest you file a complaint with the Consumer Financial Protection Bureau and get an attorney involved if necessary.

        • Gerri Detweiler

          The short answer is no, you don’t have control over that process. But in the future, you do have rights when it comes to servicer errors and if something like that occurs again I’d suggest you file a complaint with the Consumer Financial Protection Bureau and get an attorney involved if necessary.

      • Curious Lady

        What if my escrow is included in my monthly loan payment but i fail to pay it. Will i be reported as delinquent to the credit bureaus?

        • Gerri Detweiler


      • Elle Davis

        I am buying a house for cash. The seller has not paid the last year taxes. The escrow company mailed documents showing that this year’s taxes have been prorated and it shows as an offset in our paying price. When I asked about the lien at the assessors office for last year, I was told that they were being paid by the title escrow company but because of RESPA laws, it was only showing up on the seller’s side of the HUD. With no offset to me? Doesn’t that then amount to me paying the delinquent tax?

      • Annie

        My mortgage was in default in 2012 and 2013 and my property taxes was paid by my bank. I finally paid my arrears, including the amount for the property taxes in 2014. Since I was not the one who paid the taxes in 2012 and 2013, I was told that I cannot claim them in my tax return. My question is, now that I paid the bank back, can I claim the 2012 and 2013 property taxes with my 2014 filing?

        • Ose1

          you can file 1040X and claim the property taxes

      • Yamanoor Srihari

        I am not sure I am following the point about incentives vs. impounding, but then again, I am a beginner, and I’d rather clearly understand how much I pay each month and be done with it. Who wants to play hookey with some random tax for 30 years unless you are losing quite a bit of money..

      • Yamanoor Srihari

        Yup, I was about to put the Kibosh on the whole home buying research myself…

      • Just Curious

        Someone paid the delinquent taxes on a property. The 5 year dealine is fastly approaching before the property will be lost due to the inability to pay the taxes. Can filing Chapter 13 save the property via consolidation?

        • Gerri Detweiler

          Talk with a bankruptcy attorney to find out. Bankruptcy laws vary by state. You should be able to get a free consultation. Visit the website of the National Association of Consumer Bankruptcy Attorneys website if you need help finding one.

      • Paul

        My home is in Calif and I pay property taxes directly to county assessor. My taxes are based of an assessed value stated on bill, not the much higher purchase price. If you include taxes in loan payment, does the bank make assessed adjustments accordingly?

        • Gerri Detweiler

          If the lender is escrowing for taxes, they should be the tax bill annually from the county and then adjusting your escrow amount accordingly each year. If there is a shortage because your tax bill increases, you’ll have to make it up over the following year and your mortgage payment will rise accordingly.

      • sj

        We were unable to pay $2200 of our $6,000 property tax. We had our mortgage company incorporate this $2200 into our mortgage. Payments went from $670 to $2373 a month. They added next year’s taxes into our mortgage to be paid from July to December thus the huge increase in monthly payment. We advised them there is no way we can pay this huge increase – we only asked for the $2200 to be added into mortgage. They told us it was then considered a forced tax and without paying the increased house payment, we would be default and foreclosure would take place. When asked for the recording to prove that we agreed to this – which we never would have – we were told they could not provide us with the recording. Where do we go for help before we lose the house????

        • Credit Experts

          We sent you an email. (And there is an upcoming story addressing this issue).)

          • Shawn

            Can you please address this issue? I have the same problem.

            • Gerri Detweiler

              @Shawn – can you describe your situation?

      • jeff

        how much is the property tax a moth usually? i
        m from california

        • Credit Experts

          Jeff —
          It is related to both the location and value of your home. (And some places exempt a certain dollar value or percentage of value from the taxable value — or they allow taxes to go up only a certain amount annually for homeowners.) Unfortunately, it is impossible for us to tell you.

      • mattbl

        My wife and I bought our first home in Dec 2014. We were making monthly payments with escrow of about $1280/mo. This July, 2015, we received a letter from our mortgage company informing us our property taxes had gone from $2500/yr to $3500/yr b/c our estimated property value went from $165k to $195k. Our house was near foreclosure when we bought it so it was a good deal and value increased because the house was now occupied.

        So now we’re having to pay an extra $80/mo for the tax increase, plus an extra $100 or so per month for 10 months to make up for the $1,000 deficit in our escrow account. All of this makes “sense” to me, but I’m feeling very blind-sided that my mortgage broker and real estate agent did not tell us this ahead of time. They both even told us how the property value would go up, but when talking about our per-month cost, our mortgage broker never mentioned property taxes would also go up (duh, but hind-sight is 20/20).

        Admittedly, $180 isn’t a drastic increase per month, but if we could easily afford an increase like this we would simply have bought a more expensive home. We bought what we could afford comfortably, now it’s not so comfortable.

        It’s all a bit “obvious” looking back on it, but for first-time buyers there are 100 things you’re trying to comprehend and 100 more things you’re trying to remember to ask and I feel it’s easy for something like this to slip through the cracks.

        • Credit Experts

          Thanks for sharing — maybe it can help someone else avoid a bad surprise.

      • Heiby Bello

        when i bought my house 2 years ago, myrtle Beach SC, i paid $700 in property taxes. i fell to apply for legal residency and my taxes when up to $1700. after applying, i received $1000 back from the treasures office, but my mortgage company still increased my payment from $830 to $1100. there is no way i can pay for this. i have sent all kind of documentation to make them understand their mistake, but nothing so far. what can i do? please help me….

        • Gerri Detweiler

          Have you tried appealing to the CFPB? My understanding is that they have information and collect complaints about mortgage servicer errors.

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