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Homebuyers – Pay Attention to the Property Tax RATE!

When looking for your next home, pay attention to the property tax RATE! Many homebuyers don’t know this. Here is the reason why it’s so important to look at the rate and not the ‘actual’ or ‘estimated’ property taxes.

Most buyers contact a lender and find out how much of a loan they’re approved for.  Then they ask how much the monthly payments would be and the offered interest rate. What you need to realize is that in your monthly payment, while interest rate does play a factor in your total monthly payment, knowing the tax rate of a property’s location is just as important.

You also need to know that the property tax rate changes all over the place in Central Texas. One neighborhood in Round Rock, TX may have a tax rate of 2.3% and just across the street in the next neighborhood, it could be 2.7%. Also, don’t think that the tax rate in Austin, TX is going to automatically be higher because its closer to downtown Austin. Tax rates in Austin vary also, depending on the neighborhood and area. The highest tax rates are usually in Pflugerville, around 3.1%. The lowest tax rates seen are in Georgetown and West Austin, around 1.9%.

So, what composes a property tax rate? It is the sum of the rates of all applicable taxing units, i.e. cities, counties, schools, etc. These rates may change a little bit from year to year. The highest percentage of the property tax rate is the independent school district (ISD). Austin ISD accounts for 1.122%, Round Rock ISD is 1.2212%, Leander ISD is 1.4184%, etc. For city tax rates, Austin is .5535, Round Rock is .439, Cedar Park is .44698, etc. Counties, community colleges, water districts, emergency services, etc. also have their own rates and these are included in your total property tax rate. Add all of these taxing units together to get your property tax rate. If you want to know the tax rate on a particular home, feel free to contact us!

With your property tax rate, you are then able to calculate property taxes on a particular property. Don’t look at the ‘actual’ or ‘estimated’ property taxes when making your monthly mortgage calculations. The home seller may have exemptions on the home that won’t pertain to when you’re the homeowner. It’s best to calculate your payments based on the rate. Property taxes may be different when you own the property.  Here’s an example:

Let’s say you’re under contract for a home and the sales price is $350,000. The tax rate is 2.7%. Multiply 350,000 with 0.027 = $9,450. This would be your estimated annual property tax. Say you buy the home and find out the county values your property at $325,000 instead of $350,000. Then your property taxes will be based off of the 325K number, despite you paying 350K for the home. Calculate your taxes then by multiplying 325,000 x 0.027 = $8,775 annual property taxes.

Remember the county evaluates your home value every year, so your taxes will fluctuate. Property taxes usually don’t stay the same from year to year. Keep this factor in mind when you’re determining your monthly finances and budget, for taxes usually go up and hence your mortgage payments will go up. If you’re on a tight budget and have other expenses with a set income, its important to figure in a buffer for an increase in your monthly mortgage payments due to property value increases.

Now that you know how important it is to pay attention to the property tax RATE, what if math isn’t your forte? You might find these calculations confusing. No worries…that’s ok! We are real estate specialists and can walk through the calculations with you. Always feel free to contact us with any questions.