If you’re looking to purchase a home, you’re probably well aware that your monthly costs related to that purchase may be significant. After all, in addition to having to write a monthly check to your mortgage lender, you’ll also have to cover costs that include homeowners insurance, maintenance, and repairs.
And then there are property taxes to think about. In some parts of the country, property taxes can exceed what you’re paying on your actual mortgage each month. So it’s important to know what tax bill to anticipate before making an offer on a home.
But there’s another important detail you’ll want to cover before making an offer on a home. It could spare you from landing in a situation where your homeownership costs rise substantially year after year after year.
It’s a matter of frequency
Property taxes are calculated by taking the tax rate your town has established and multiplying that figure by the assessed value of your home — meaning, the price your home would likely fetch if you were to put it on the market.
So let’s say your local tax rate is 1.5%, and your home is assessed at $400,000. That leaves you with a yearly property tax bill of $6,000.
Now, it’s easy enough to work an initial property tax bill into your budget. In this example, you’d simply factor in an additional $500 a month for property taxes on top of your other homeownership costs.
The problem, though, is that property taxes aren’t set in stone. Not only can your town’s tax rate change over time, but your property’s assessed value can change, too.
Worse yet, some towns reassess homes on an annual basis. So before you make an offer on a home, if you’re not totally familiar with the neighborhood and the frequency at which homes are reassessed, ask.
If you’re looking at a yearly reassessment, it means you risk having your property taxes increase every 12 months. And that could turn an otherwise affordable home into one that’s far from it.
Expect other home costs to rise, too
Of course, when you own a home, it’s not just your property tax bill that could rise from one year to the next. You might also find yourself spending more on insurance, maintenance, and repairs as your home gets older.
It’s a good idea to try to buy a home that’s below the top of your budget. If you can afford a monthly mortgage payment of $2,000 plus another $1,000 in peripheral homeownership costs, you may want to consider limiting yourself to a home whose monthly loan payment will only come to $1,600 or so. That way, there’s wiggle room to cover an increase in property taxes and other expenses even if your income doesn’t rise.
Of course, these days, spending less money on a home isn’t easy. The median home sale price in December 2023 was $382,600, as per the National Association of Realtors. That’s a 4.4% uptick from a year prior. But if you can buy a less expensive home, it’ll give you more wiggle room for when your other costs inevitably start to creep up on you.