Property Taxes: What First-Time Buyers Need to Know
Property taxes are part of your monthly payment, but most first-time buyers do not understand how they work — or that they can increase significantly after you buy.
How Property Taxes Are Calculated
Your local government assesses the value of your property and multiplies it by the local tax rate (called the mill rate). Rates vary wildly by location — from well under 1% in some states to over 2% in others — check your local rate before assuming. A $300,000 home with a 1.5% tax rate costs $4,500 per year, or $375 per month added to your mortgage payment.
The Reassessment Surprise
Many counties reassess property values when a home sells. If the previous owner bought the home 15 years ago for $150,000 and you buy it for $300,000, the assessed value — and your property tax bill — could double compared to what the seller was paying. The listing may show the seller's tax amount, which can be misleading.
Escrow and Your Monthly Payment
Most mortgage lenders require you to pay property taxes through an escrow account. They estimate your annual taxes, divide by 12, and add that amount to your monthly payment. If taxes increase, your monthly payment increases too — even though your mortgage rate is locked. This is the most common reason a "fixed rate" payment goes up.
Key Takeaways
- ✓Property tax rates vary significantly by location — check before you buy
- ✓Taxes often increase when a property changes hands due to reassessment
- ✓Your "fixed rate" monthly payment can still rise if property taxes increase
- ✓The listing's tax amount may not reflect what you will pay
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