There are a number of elements that homebuyers will be thinking about during this process, including some important financial themes for purchasing and owning a home. One of these that must be considered, and which it pays to know, is your home's property tax.
When you work with the pros at Integrity First Lending, we'll keep you abreast of all the important financial considerations for your mortgage and homebuying needs. We offer both original mortgages and mortgage refinancing services to clients throughout Utah, and we'll be happy to walk you through some of the most important long-term costs that come with homeownership, including property taxes. Why is it important to be aware of your property taxes for any home you own? Here's a basic primer.
In many homebuying situations, the buyer pays an "earnest money deposit" at the time of purchase and then puts the rest into an escrow account (that is, a holding account) until some crucial point during negotiation or financing. One of these points is the transfer of title when you close on your home, which can be especially significant if escrow is used to pay part or all of the down payment.
In some cases, earnest money you're putting down will be calculated based in part on local property taxes. That's because local property taxes are one of the major periodic expenses you'll need to plan for as a homeowner.
Similarly, part of your monthly mortgage payment may actually be escrowed away in order to pay these taxes when they come due (usually once or twice per year). Therefore, if you're not aware of how much your local property taxes are, you may end up either overestimating the amount of your escrow or underestimating it. Either way, the result could be suboptimal for your overall financial health.
Property tax is based on the assessed value of the property in question. This assessed value may be done by a professional assessor working for the municipality, county, or state in which the property is located. In some cases, the assessment is done on a regular basis (such as every year), while in others it's done only sporadically (such as every five to 10 years).
The important thing for homeowners to know is that a new assessment may mean a new tax burden. So, if you're not aware of how property taxes are assessed in your municipality or county, you could be caught off guard by a sudden and significant increase.
Finally, it's important to realize that your home's location has a major impact on property tax, particularly within the realm of what's known as the "mill rate" or "mill levy." This is the percentage of value that your home is taxed on -- 4% is a common rate in many areas, but it can vary significantly.
For example, a municipality with a very low mill rate may have higher absolute property taxes than another municipality with a higher mill rate. However, the first municipality's residents will pay less of their home's value in taxes overall. So, if you're considering a move to a different municipality or county, it pays to know what the mill rate is in that area and how it compares to other locations.
If you have any questions about property taxes or any other financial aspects of mortgages or homeownership, don't hesitate to reach out to the team at Integrity First Lending.
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