Unveiling the Property Tax Mystery:  

Decoding the Home Tax Scenario

[Credit to Ready Rate, Feb 6, 2024]

Navigating the intricacies of property taxes can be like deciphering a secret code. At Ready Rate, we’re here to provide Realtors with the lowdown, helping you guide your clients through this often-misunderstood aspect of home buying.

Understanding Property Taxes

Let’s tackle the burning question: What are the property taxes on this home?

One of our goals at Ready Rate is to empower Realtors with knowledge. Property taxes don’t need to be shrouded in mystery. Here’s a breakdown to arm you with some of the basics. Let’s debunk the misconceptions and equip you to educate your clients effectively.

During your buyer consultations, emphasize a crucial point: the current taxes belong to the seller and are irrelevant to the buyer. Once a home is purchased, a value reassessment with the county tax assessor is triggered. The timing and homestead status determine whether the buyer inherits the seller’s taxes for the remainder of the year or faces a reassessment the following year.

Hypothetical Scenario

Let’s dive into a hypothetical scenario featuring John and Susan, who purchased a $700,000 home in Florida. The seller, who bought the home in 1990 for $250,000, enjoyed the benefits of Homestead and Save Our Homes benefits. Over 30 years, their taxes increased to $6,000.

Now, John and Susan step into the picture.  Their loan officer used the seller’s taxes to calculate the mortgage payment at closing. They inherited the seller’s $6,000 tax bill, paying $500 monthly into their tax escrow.

When the new tax bill arrives—$14,000 due to the reassessment triggered by the $700,000 purchase. The escrow company (the company you make your mortgage payments to) covers it, but John and Susan face an $8,000 shortage in their escrow.

The escrow company’s letter arrives, signaling an escrow deficiency. John and Susan’s monthly escrow portion for taxes jumps from $500 to $1,166, leading to a $666 increase in their mortgage payment. 

Most loan officers fail to explain taxes clearly when someone is getting a mortgage. For John & Susan, unfortunately this is exactly what happened. The change in their tax burden was a big surprise. Fortunately, with their homestead now in place future increases to their home’s taxable value is capped at 3% per year. Additionally, any amount that the home appreciates above 3% is accumulated by John and Susan as a tax credit that they can take with them in the future if/when they buy another primary residence. That is called a tax Portability.

Specifics You Should Know

Understanding the tax landscape is crucial. Another important thing to know, Ad valorem tax is based on the purchase price, while non-ad valorem taxes cover fixed services. Pro tip, Watch out for CDD (Community Development District) taxes, common in new constructions or specific resale purchases.

Feeling overwhelmed? Start by checking the county property appraiser’s website for a tax calculator and delve into the tax assessor’s office for non-ad valorem details. These estimates provide a solid starting point, aligning your clients with reality.

Next, lean on your team at Ready Rate. We are experts on mortgages and everything else that impacts a client’s mortgage like real estate taxes! Our mission is to change peoples’ lives for the better, one mortgage at a time. That mission includes you. We are here to help you shine as a realtor.

Have any more questions?  Let’s chat! Please contact your loan officer at Ready Rate or call us at 888-707-1776. We’re here to make the mortgage game a winning one for you and your clients. Ready Rate the easiest way to reach your goals.  

By Ready Rate, Updated February 06, 2024