You should always look at the real estate property taxes when shopping for a home. That’s because lenders consider this amount when qualifying you for a loan, and you must be able to afford this amount in addition to the costs of the home.
Here’s How it Works
When a lender pre-qualifies you for a mortgage for a set amount of money, they are essentially determining how much they think you can afford to pay back on a monthly basis based on current interest rates. But in addition to the monthly principal and interest you pay the bank each month price of the home, you must also be able to afford the costs of your real estate property taxes.
Property taxes can vary a great deal based on the locality where you choose to live or even which neighborhood, as well as on the value of the property, including both the home and land.
The higher the property taxes you have to pay, the larger the portion of your monthly payment that must be allocated to taxes, which leaves you with a smaller amount toward the purchase price of the home.
Who Determines the Property Tax Amount?
To determine your property tax amount, a local tax assessor determines the value of a property, and multiplies that by your locality’s tax rate.
So, for example, if you are buying a home assessed to be worth $200,000 and the local tax rate is 1.5%, your property taxes would be $3,000 each year; $250 will be added to each monthly mortgage payment. Keep in mind that the rates and fees will change over time, and your assessed value will also typically go up if you renovate your home or make other improvements or additions.
Escrow Accounts
Most lenders require your property taxes to be included in your mortgage payment. They will set up an escrow or impound account for holding the portion of each mortgage payment that is for real estate property taxes, then they pay the taxes to the locality when they are due.
If you are wondering why lenders are so concerned about property taxes, it’s because unpaid property taxes are a superior lien to the rights of the lender. What this means is that if the lender forecloses on your house, they will end up having to pay the unpaid property taxes.
For this reason, almost every mortgage loan has a provision that says you agree to pay the property taxes when due and that the failure to do so is an “event of default.” This means a lender could foreclose on your property if you haven’t paid the property taxes, even if all your mortgage payments on time. Again, to ensure this doesn’t happen, most lenders collect property taxes directly from you in your mortgage payments.
Lakeside Title Company
Lakeside Title Company is proud to provide services to Maryland’s diverse real estate community. We offer title insurance and numerous title services to streamline residential and commercial transactions for lenders, realtors, buyers and sellers. To learn more about our comprehensive title-related services, visit our website or give us a call at 410-992-1070. We look forward to the chance to serve you!
