Property Tax With a New Home Purchase

When you're ready to purchase a new home, you must know all the fees added at closing. While your property tax is an annual expense, it's also prorated and added to your closing costs. Our first article in a series on property tax discusses what to expect when buying a new house.

Property Value vs. Tax Rate

Property tax rates are not determined solely on your property's value. While the property value is based on what it would sell for in the current market, the tax rate, or percentage of the taxable value, fluctuates based on the needs and budget of the taxing unit. You can search for the tax rates before buying property by searching for your county on the Texas Comptroller's website.

"Do your research on tax rates for the area before you buy your home," says Zulia Orsorio, Mortgage Manager with Texell Home Loans. "Knowing the difference in tax rates can help you determine which property will best fit your budget.” Compare property taxes for different counties in Texas at Taxease.com. Each county is responsible for setting the tax rates, and those with smaller populations typically have lower tax rates.

What to Know When Purchasing a Home

When buying a home, the timing of the purchase will determine the amount you'll pay for the taxes due that year. You pay property taxes in advance for the entire year, and the seller pays the amount due up to the purchase date. The buyer pays for taxes due from the closing date to the end of the year; this prorated amount is included in the buyer's closing costs.

Research the current homeowner's exemptions to reduce your tax burden, but remember these exemptions may not apply to you. Learn more about the exemptions available, including homestead, 65 or older, and disabled veteran, on the Comptroller's website.

Setting Up Escrow

Property taxes, like any other tax, are non-negotiable. If you don't pay them, you are in delinquency and at risk of a mortgage lien or foreclosure. Although lenders generally require escrow on mortgage files, you can request a waiver to make one lump sum payment. You may also be able to make quarterly payments. Contact your local tax assessor-collector to learn about your options.

Your lender can set up an escrow account at closing that includes all costs related to the purchase, such as taxes and insurance. These costs are calculated and added to your monthly mortgage payment. Having taxes pre-paid by being pulled from your escrow account avoids delinquency.

With a newly constructed home, the property taxes in the initial escrow calculation may not be reflected accurately if it’s based on the empty lot. You may see a sharp increase in your escrow amount once construction is complete. To prepare for this increase, estimate the taxes on your new home and add this to the amount you have set aside for escrow. Discuss the escrow process, as well as property values and exemptions, with your mortgage loan officer so that there are no surprises on your monthly payments.

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