For new or prospective homeowners, taking the leap of buying a house is an exciting life event. However, while seasoned homeowners will likely be familiar with the costly responsibility of property taxes, it is easy for new home buyers to overlook these costs when putting together their budget.
As property taxes are paid in arrears in Texas, there will be property tax payments due from both the buyer and seller at closing. Luckily, determining the exact amounts owed when calculating the property tax liability for each party is typically the responsibility of the title company.
Upon the sale of a home, buyers going through their closing disclosures (CDs) will notice a few sections detailing additional costs they will need to pay before closing. Some of these costs (which are homeowner’s insurance, property taxes, likely going into an escrow with the buyer’s lender, and prepaid interest) are referred to as prepaid costs because they need to be paid ahead of schedule.
Lenders charge these prepaid costs to help ensure that buyers stay current on these payments and thereby protect their first lien position. For example, a buyer not paying property taxes could result in the county taking lien priority from the lender, so lenders fund an escrow account as a part of the closing costs. Generally, home buyers will likely need to pay a minimum of three months’ worth of property taxes in advance when they close on the purchase of their new home. There are rare cases where homeowners are required to pay the first year of taxes or even more as part of the closing costs. However, some sellers offer to pay the property taxes for the full year to make the sale more attractive to prospective buyers.
As for the actual property tax bill for the property being sold, the liability is usually split between the buyer and the seller. Most commonly, property taxes at closing are prorated. This means that the seller will pay the property taxes owed before closing, and the buyer will be responsible for the property taxes due after closing.
How property taxes are handled at closing in Texas may seem complicated, but luckily the lender or title company will provide buyers with a ‘cash due at closing’ document that details all the necessary costs, including their property tax obligation.
In short, property taxes are not affected by home sales, so the property will not be reassessed just because it has been sold. Furthermore, if the purchase price was more than the home’s market value (or less), this will not change the property taxes either. However, the sale may figure into the future appraised property value.
Property taxes in Texas are determined based on the appraised value of a property. Every year, local appraisal districts determine the appraised value of a property (based on the market value, which ultimately relates to your purchase price), and this is used to calculate how much each property owner will need to pay in taxes.
Texas county appraisal districts are responsible for conducting fair market appraisals to determine the taxable value of homes within their boundaries. Notices of appraisal values are sent out annually, but Section 25.18 of the Tax Code requires appraisal districts to reappraise all properties in their jurisdiction every three years.
Some people believe that property taxes on new homes end when their mortgage is paid off. This may be due to the fact that most people pay their property taxes in monthly installments that make up part of their mortgage payment (through an escrow), so it is assumed that after the mortgage has been paid off, the property tax payments will stop too. This isn’t true. So, how long will you need to pay property taxes? Property taxes will be due for as long as you own the property. If you had previously been paying your property taxes through an escrow account but have since paid off your mortgage, you will now need to make payments directly to your local tax collector for as long as you own the property. Property tax payments are considered delinquent as of February 1 each year, and the tax collectors will begin charging penalties and interest after this date. Unpaid taxes, penalties, and interest can result in attorney fees, liens, and even foreclosure if they remain unpaid for a long period of time.
Unfortunately, there is no way to stop paying property taxes completely, but there are deferral options for senior citizens, exemptions for veterans and disabled residents, and other property tax reductions that can be investigated.
Founded in 1946, American Finance & Investment Co., Inc. (AFIC) started by serving the financial needs of El Paso and has since grown to become one of the top property tax lenders in the state of Texas, with a complaint-free track record for over 65 years, with the Better Business Bureau. We offer our clients an affordable, hassle-free way to ensure that your account with the local government tax office is paid in full and will work out a manageable repayment plan for you. AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
Rates as Low as 8.0% (8.51% APR*) $25,000 loan,
$750 in Closing Costs, 120 Monthly Payments of $303.32
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YOUR TAX OFFICE MAY OFFER DELINQUENT TAX INSTALLMENT PLANS THAT MAY BE LESS COSTLY TO YOU. YOU CAN REQUEST INFORMATION ABOUT THE AVAILABILITY OF THESE PLANS FROM THE TAX OFFICE.
If you are over 64 or disabled, don’t get a property tax loan, contact your tax office about a deferral.
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