How Property Taxes Play a Role in Your Mortgage PaymentOne of the often overlooked aspects of homeownership is the paying of property taxes for the properties that you own. Of course any time you say the word taxes, your brain can jump down a rabbit hole of confusing laws, rules, and jargon that instantly leave you confused and frustrated. 

What Is Property Tax?

Property tax is paid by an individual or entity on an owned property. Property taxes are a type of “ad-valorem” tax, which means they’re based on the assessed value of real property and some tangible personal property, such as boats or cars. In the U.S., these taxes are generally levied by state and local municipalities and used to fund school districts, community amenities and other local expenses and projects. Property taxes can vary widely between states and even adjacent municipalities.

How It Works For Your Mortgage Payment

The taxes portion of your mortgage payment is 1/12 of the annual property taxes on your home. Some owners of homes for sale in Champions Gate pay their property taxes directly, but lenders usually estimate the amount and fold them into your monthly mortgage payment, and then the loan servicer handles it all. That way, the lender can be certain that the taxes get paid.

The portion of your taxes that you pay each month is held in escrow until the tax bill comes due, and then the servicer pays it for you. (When something is placed in escrow, it simply means that it’s placed with a third party, a middleman.) Since the amount is an estimate, sometimes there’s an adjustment at the end of the year, and you get a little back or owe a little extra.

Are Property Taxes And Real Estate Taxes The Same?

Essentially, property taxes and real estate taxes are the same thing. The term “real estate tax” refers to a tax on owned real estate. Real estate tax and property tax can usually be used interchangeably unless you are talking about personal property tax. Personal property tax includes movable assets like cars, boats and planes but excludes homes or real estate.

Something To Consider

A lot of first-time homeowners don’t realize just how much homeowners pay in local property taxes — nationally, an average of more than $2,000 each year. Property tax rates can range all over the place, so it’s important to research and account for this expense when deciding which of the many beautiful homes for sale in Champions Gate you can afford. Speaking with a mortgage expert early in your home buying process will be key to helping you understand how much home you can afford and what property taxes will come into play.

While anything related to taxes can be a scary subject for many people, property taxes and how they affect your home purchase is an important process to understand. Even just a surface level knowledge of taxation can help you make a better home buying decision and will set you up for success down the road. As always, the more knowledge you have on a subject as important as property taxes, the happier you will be with your home buying experience.

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