Property taxes are one of the many expenses to think about as a homeowner. Property taxes fund various services such as public schools, community infrastructure, and emergency services.
When purchasing a home, property taxes will be a part of your closing costs. Most lenders will also roll your property taxes into your monthly mortgage payment through an escrow account.
Learn more about how and when you’ll pay property taxes if you have a mortgage.
Property Taxes and Closing Costs
When closing on a home, property taxes can sometimes come into play. In Texas, property taxes are typically prorated at closing. This means the seller credits the buyer for property taxes from January 1 to the closing date.
How Property Taxes Affect Your Mortgage Payments
When you purchase a home with a mortgage, your lender has a vested interest in ensuring that property taxes are paid. Unpaid taxes can become a lien on the property, which poses a risk to the lender.
Escrow Accounts
To avoid this, most mortgage lenders require an escrow account for ongoing expenses like insurance premiums and property taxes. Each month, along with your mortgage payment, you pay a portion of your estimated annual property taxes (and homeowners insurance) into this account.
When taxes are due, the lender pays them on your behalf from the escrow account. If you paid more than what you owe, you’ll get a refund. Typically, the refund is offered as a lump sum or reduced payment.
This arrangement ensures that taxes are paid on time and spreads the cost over the entire year, making it more manageable for homeowners.
Are Property Taxes Included in Mortgage Payments?
For most homeowners with a mortgage, property taxes are in their monthly payments, managed through an escrow account as mentioned earlier. However, if your mortgage does not include an escrow account, you are responsible for paying your property taxes directly to the county tax office.
It’s important to monitor your escrow account annually to ensure that enough funds are collected to cover taxes and insurance. If there’s a shortfall, you’ll need to make up the difference. Conversely, if there’s an overage, you may receive a refund.
Does Refinancing Impact My Property Taxes?
No, refinancing your rate and terms typically doesn’t impact your property taxes. Your mortgage appraiser’s valuation is different from the assessment from your county’s Central Appraisal District (CAD). The property value set by your CAD is what influences your property tax bill.
If you refinance, review your new terms, especially if you are using a different lender, so you know how your property taxes will be paid. If they aren’t escrowed, you’ll have to pay out of pocket.
When Will I Pay Property Taxes if I Don’t Have a Mortgage?
If you don’t have a mortgage or an escrow account, you make direct payments on your property taxes to your local tax assessor. Depending on where you live, this could be quarterly, semiannually, or annually.
Ways to Save on Property Taxes
While there’s no way to reduce your property tax burden with refinancing, there are other ways to save on property taxes through exemptions, tax relief programs, and property tax protests. Texas offers several property tax exemptions that can reduce your tax burden.
If you have any further questions about property taxes and mortgages, or if you need assistance with property tax protests in North Texas, contact our consultants.