Purchasing a home is no small task, and between closing costs, down payments, and monthly mortgage expenses, it might seem that buying a new home costs more than you thought. Anyone who has owned a home for a while knows that the list of expenses never really goes away, and there’s one important item to remember even when your Spring Hill home is paid off and all repairs are complete: property taxes.
The How And Why
Even if a person owns their home outright, they still technically don’t own the land it's on without ever having to make a payment to their local government. Property taxes in the United States date back to colonial times, in which colonials payments to the King of England for the use of the land.
In today’s context, property taxes account for the usable land a home is on as well as the value of the buildings on the property. These figures are calculated by the local tax assessor and create a dollar amount that homeowners must pay each year.
How much you pay each year in taxes will depend on the size of your home, the age, the condition, and even external factors like school and law enforcement budgets. All of this information goes into creating the yearly amount, although unless something significant happens to the property, the number stays roughly the same.
Ways To Pay And Factors For Purchasing
The payment of property taxes generally falls into two categories and is determined by whether the home is paid for or not. Those with a mortgage usually include their property taxes as part of their mortgage payment, and this monthly amount goes into an escrow account. Their lender is then responsible for paying the property taxes with funds out of that pool.
Individuals who have their home paid off are in a bit of a different situation, as they aren’t making a monthly payment into any type of escrow account. These homeowners often take the stance of saving each month toward their annual payment, or if they are in a favorable cash flow position, simply wait for the tax bill to come in and then pay it.
When it comes to purchasing a home, some buyers like to take past property taxes into consideration in order to figure out if the home is affordable or not. In some situations, a homeowner may have a relatively low mortgage payment due to a great interest rate but also have to contribute to an escrow account toward taxes that cost upwards of $6,000 per year. These numbers can be very influential when it comes to home buying.
All About The Numbers
At the end of the day, the entire picture of a home’s cost should be considered before making a purchase. It’s oftentimes the largest investment of a person’s life, and they should look at all costs both during and after their loan is paid in order to get an accurate idea of affordability.
No matter if the home is paid off in 15 or 30 years, or even if it’s bought with cash to begin with, the expense of property taxes will never go away. If your dream home comes with a high tax burden, you just might want to weigh all of your options and find out what fits best for you.
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