Are you interested in becoming a homeowner? Are the complexities of property taxes stopping you from making a decision?
Don’t worry! Our McAllen real estate agents at Equity Assets Realty want to provide you with the information you need so you can make the best decision for your situation. Keep on reading to learn some valuable information about property taxes.
What You Need to Know About Property Taxes
The Factors Used to Assess Your Property Taxes
Property taxes are assessed in three distinct ways:
The value of the home as determined by the local government tax appraiser
The local government’s budget
The mill rate
The last method of assessment is a little more complex than the other two. For mill rates, a certain dollar amount is assessed in tax for every thousand dollars of assessed value, which is factored into the calculation of your property tax bill.
Usually, your property deed or your municipal tax office will set the mill rate.
A Tax Assessor Will Calculate Your Property Taxes
A tax assessor usually calculates property taxes by assessing the property value of your home and adjusting it to local guidelines. In Hidalgo County recently, a new property tax rate for the City of McAllen was proposed at $0.479234 per $100 USD.
If the new tax rate goes into effect, your property tax in McAllen would calculate as follows:
(rate) x (the taxable value of your property) /100 = Your property tax amount
While we know what the tax rate could be, a tax assessor would have to find out what the taxable value of your property is. For simplicity’s sake, let’s say that the taxable value of your home is equal to $150,000.
By taking the above formula and plugging in the rate and value, you’d get something that looks like this:
(0.479234) x ($150,000)/100 = X (where X is the total amount of your property taxes)
(71885.1)/100 = X
718.851 = X
As a result, your property taxes would equal $718.85. While this is a simplistic view of how property taxes are calculated, they essentially work in this manner.
It’s worth noting that certain homeowners may be eligible for exemptions, including:
If you are disabled
If you over 65 years old
If you are a veteran
If you are 100 percent disabled veteran
It is Important to Know What the Property Tax Will Be Prior to the Purchase of a Home
For individuals interested in buying a home, it would be in your best interest to know what the property taxes will be ahead of making the purchase because:
The majority of mortgage companies will encourage the property owner to escrow the property taxes. Because of this, it will become a part of your monthly payment that needs to be evaluated for affordability.
Property taxes can — and do — rise because of a reassessment of value after the home has been purchased. Homes are usually assessed every year based on the budget of the local government and the growth of value within the housing market in the area.
Every town has different property taxes, allowing potential homebuyers to shop for better value.
Due Dates for Property Taxes Differ By County
Just as property tax rates differ by counties, so do the due dates. Some counties require that you pay the annual property tax in one lump sum, whereas others may allow payment in two installments. For this reason, it is important to NEVER ignore a second tax notice.
Forms of payment also differ from county to county. For convenience sake, some counties may allow you to pay these property taxes via an online credit card system. On the other end of the spectrum, some counties may require a check.
If you pay a mortgage, the bank may charge an extra amount each month to put into an escrow account to pay the property taxes for you.
Penalties May Be Applicable If You Fail to Pay On Time
In a statement made popular by Benjamin Franklin, “In this world, nothing can be said to be certain, except death and taxes,” and property taxes are no different. It should go without saying that property taxes must be paid, and if not, there will be legal consequences.
The truth of the matter is that these penalties depend on the city and the state in which you reside in. Regardless, if you fail to pay your property taxes, you could eventually lose your home and property.
Property Taxes May Provide a Tax Break
While purchasing a home can make a dent in your bank account, so to speak, owning a home can lead to some nifty little perks like tax deductions, tax credits, and tax rebates on your next tax bill. When filing your federal income tax, you’ll have an option to deduct what you paid in property taxes throughout the year.
With these tax breaks, the amount of taxes you owe can be reduced, and may even help you to qualify for a refund. Keep in mind, however, that you will want to pay off your taxes by the tax deadline.
Limitations on the Reassessment of Property Taxes
Luckily for certain homeowners, some states and areas have implemented laws that cap the amount that a reassessment of property taxes can grow to.
In the state of Texas, that cap exists at no more than 10 percent in accordance to the homestead exemptions law. So if your home is valued at $175,000 this year, but was valued at $150,000 last year, your home would be taxed at a $165,000 value. (150K X 10% = $15K +150K = $165K)
You have questions. Equity Assets Realty has answers.
The home purchasing process can be complicated. There’s plenty of questions and concerns that a first time home owner may have. Luckily, our experienced team of McAllen realtors at Equity Assets Realty have the answers you need so you can make an informed decision.
For first time home buyers, purchasing a house can be a daunting experience. At times, it can feel like having a Ph.D. in finance is required just to figure out the costs and hidden fees that go into your mortgage.
Luckily, our expert McAllen realtors at Equity Assets Realty have plenty of experience helping first time home buyers — and even fifth time home buyers — get the best mortgage possible so they can acquire the home of their dreams.
Our realty agents have learned many meaningful tips and strategies to help our clients determine how much of a mortgage they can afford. Below are a few of the most useful tips they have uncovered to help you find an economical, and ultimately, comfortable mortgage for your budget.
1. Know the Golden Rule of Mortgage Affordability
Our experts know Rio Grande Valley realty and mortgage affordability. In the real estate industry, it pays to know the golden rule.
That golden rule? That’s the 28/36 rule.
The 28/36 rule recommends that you spend no more than 28 percent of your gross monthly income on total housing expenses and no more than 36 percent on all monthly debts.
Let’s dissect exactly what this means.
The first half of the rule is known as the “front-end ratio,” and it encompasses all expenses in your PITI, which is monthly payments, interest, property taxes, and insurance payments. Let’s not forget that this includes condo and/or housing association fees, but excludes monthly utility bills like light or cable.
For example, let’s say that you take home around $5,000 a month. If you take 28 percent and times it by 5,000 (5,000 X 0.28), you get around $1,400 as a result. That number is the most a borrower should spend in terms of a monthly mortgage, homeowners insurance payments, and/or property taxes.
On the other side, the 36 percent is known as the “back-end ratio,” and it is calculated by taking all debts you have into consideration, including:
PITI payments for your mortgage
Homeowner’s association dues
Credit card debts
Other personal loans
Monthly alimony payments or child support
So why not call it the 36 rule and just be done with it all? Because there is a complete distinction between the front-end and back-end ratios.
Monthly payments are only included in the back-end ratio when they are expected to be paid for the next 10 months or longer. Still paying off that car you bought for the next 9 months? That won’t be factored into the back-end ratio.
To illustrate this point, pulling from the example above, let’s say all of your PITI payments are equal to $1,400. Now, let’s stack on other monthly debts like car loans, student loans, and/or utility payments, and the new total is $1,850.
In order to qualify for the back-end ratio, a borrower would have to make at least $5,138.88 in gross monthly income (1,850 ➗ 0.36 = 5,138.88).
In the end, it is important that borrowers pay down all of their debts and other loans in order to qualify for larger mortgages.
2. Your Down Payment Matters
It may seem like common sense but it’s definitely worth repeating—the larger your down payment, the lower your monthly mortgage will be.
If you want to save even more money in the long run, you will want to pay down at least 20 percent of the home’s total value. Why? Because at that point, you generally will not have to purchase a private mortgage insurance, which protects the lender should you default on your home. Suffice to say, these insurance plans aren’t cheap—they can come at a cost of a couple hundred dollars a month.
That’s why your down payment is so important. While it may take some time to acquire the funds, it will be worth the longterm investment of owning a home, and as the old saying goes, “All good things take time.”
(But don’t take too much time. Taking too long to build up the capital for a large down payment may come at the cost of an increased price tag or higher interest rate.)
3. When in Doubt, Use Your Rent to Figure It Out
It’s a smart move to use your current rent as a gauge to figure out how much of a monthly mortgage you can afford. If you are struggling to make ends meet rent-wise, going for a home that has a higher monthly mortgage than what your rent currently is can be a disaster waiting to happen.
It’s also worth noting that houses come with many provisional expenses that renting helps you to avoid. For instance, are you experiencing some sort of plumbing issue? That’s coming out of your pocket. Did one of your appliances break down? You’ll have to carry the cost. Ant infestation…well…you get the idea.
If you have no wiggle room for these extra expenses, you will be financially stressed, and that is never a good thing.
Getting on the good side of a tax adviser could also be beneficial as a homeowner because you will want to itemize your deductions. A tax adviser (or even a tax software program) can help you find the best options for tax purposes.
Looking to purchase a home can be a scary ordeal, but with the right McAllen realtor by your side, it can be a memorable and exciting experience.
Our McAllen realtors are ready and eager to help get you into the home of your dreams. Contact us today at (956) 994-9455 to start that journey.
In order to purchase the home of your dreams, it is essential that you take control of your finances. Without the right savings plan in place, it can feel like a daunting – and nearly impossible – task to save up money for a house.
Luckily, your experienced McAllen realtors at Equity Assets Realty know a number of fantastic strategies and tips to help you buckle down and save enough for that down payment. If you’re ready to take the first step to becoming a homeowner, take the following money-saving strategies to heart.
9 Tips You Need to Know to Save Money for a House
1. Consider Your Timeframe
This is essential to determining how much you will need to save within a given amount of time. If you plan on purchasing a home within a 3 to 5 years, then you can calculate accordingly.
2. Track Your Money
Before you thought about buying a home, you might have been a little lenient about your spending. Going out with friends? No problem. Treating yourself to a nice meal? Why not.
But now that you’re saving up to buy a home, you need to become somewhat of a penny pincher. This means you’ll need to track your spending and expenses. You might be shocked to find out you’re spending a hefty amount on luxury items that you can definitely live without.
There are plenty of apps and online tools that can help you figure out how much is leaving your bank account and where you can save.
3. Budget, Budget, Budget
This tip goes hand in hand with tracking your money. Once you have an understanding of where your money is going, it’s time to set some limits. While this may not be the most exciting step, it is a necessary one, nonetheless, and will help you to get the keys to your dream home that much faster. Areas to keep an eye on include:
Groceries – Be a smart consumer and see what types of items can be cut and consider buying off-brand.
Monthly Expenses – What services are you paying for that you don’t actually need? Are you paying extra for unlimited data on your cell phone? Unless it’s essential, cut it. Look into your internet service, any memberships that you really don’t take advantage of, and the likes.
Luxury Expenses – Do you enjoy spending the weekends taking in all the local sights, attending concerts, going to the movies, and just generally being social? Awesome. Except these expenses tend to take a lot out of your bank account. While it’s ok to splurge every once in a while, it shouldn’t be happening every week.
Housing Expenses – If you think saving up might take you some time, it could be in your best interest to move into a cheaper place or rent out any extra rooms you may have.
4. Boost Your Income
If you are really invested in purchasing a home ASAP, one of the best steps you can take is to increase your income by working extra hours at work, picking up some part-time work, or using any talents or skills you may have to get some freelance work.
5. Pay Off Debt
High-interest debt can do a number on your paycheck. Having to pay off numerous credit cards and other high-interest loans can limit your ability to save.
If you budgeted correctly and cut back on unnecessary expenses, you can use some of this money to attack your debt and bring it down. Another benefit of this tip is that you’ll be improving your credit rating at the same time.
6. Save Any Extra Money You Get
Perhaps you’ve received a bonus from work or are expecting a sizable tax refund. Any sort of financial windfall should be put into a savings account that is going towards purchasing a home.
7. Set up an Automated Savings Plan
It can be a challenge to save money when you are receiving all of your paycheck in your regular bank account. You’ll see the money and be much more tempted to spend it.
By automating the savings process, you essentially avoid this. You don’t ever see money – so to speak – making it harder for you to spend it.
8. Open Up a Certificate Deposit (CD) Account
A CD account is a savings account with a fixed interest rate and a set date of withdrawal. There’s a penalty for withdrawing your money early, so there’s enough of an incentive to not touch your money.
You’ll add a couple of extra dollars to your savings with this type of account and also limit the possibility of dipping into it.
9. Keep In Mind Other Costs Associated with Buying a Home
Saving up for a house isn’t just about the downpayment, there are a number of other fees and costs that you’ll need to keep in mind. These additional costs include:
Appraisal and Inspection Fees – You’ll need to have your home inspected and appraised before your mortgage is approved.
Closing Costs – These fees must be paid before “closing” on a mortgage contract and can reach between 2 to 5 percent of your total mortgage.
Private Mortgage Insurance (PMI) – This fee is placed on your monthly mortgage payment if you put down less than 20% for the home.
While this is by no means an exhaustive list of tips to saving money for buying a home, it should provide you with a great head start.
When you are ready to make that big purchase, make sure to reach out to the McAllen realtors at Equity Assets Realty.
Are you ready to find the perfect home? Contact Equity Assets Realty today at 956-994-9455. We have plenty of experience and success in helping individuals find their dream home in McAllen.