Homebuyers Beware: Property Tax Pitfall Lurking in New Construction

Buyers of newly built homes can face a property tax surprise. Here’s why

Navigating your financial future as a homeowner can be tricky, especially with newly built homes.

Often, first-time homeowners face a shock when their mortgage payments increase significantly after the first year.

This is largely due to property taxes, which are often underestimated or estimated based on outdated information.

Newly built homes make up a significant portion of the current market, and with more buyers opting for them, it’s crucial to understand the potential increase in costs.

Lenders calculate monthly payments including principal, interest, homeowners’ insurance, and property taxes.

However, for new homes, property taxes are often estimated or based on older rates as there is no previous tax history.

Once the local tax assessment cycle occurs, the county reassesses the value of the new house, resulting in an updated property tax rate.

This often leads to a shortage in the homeowner’s escrow account, requiring a lump sum payment or increased monthly mortgage payments to cover the difference.

To avoid this surprise, buyers should research the reassessment frequency and formula used in their county.

Consulting with a local loan officer or checking property tax estimates for similar homes in the neighborhood can provide a ballpark estimate.

Remember, online property tax records reflect the taxes paid by the current owner, not what you would pay.

It’s essential to factor in the potential increase when budgeting for a newly built home to avoid financial surprises down the road.