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Ruoff Mortgage
When you're buying a home, it’s easy to focus on the big-ticket numbers—purchase price, down payment, loan details. But there’s a quieter cost in the background that can have a serious impact on your monthly budget: property tax.
Let’s break it down, because understanding how property taxes work—and how they’re paid—can help you avoid surprises and plan smarter.
What Is Property Tax?
Property tax is a recurring tax assessed by your local government, typically at the county or city level. It’s based on the assessed value of your property, not just the price you paid for it. These taxes fund essential public services like schools, fire departments, police, and local infrastructure.
That means your property tax bill is about more than just your home—it’s tied directly to what your community provides.
How Is Property Tax Calculated?
Property tax is usually calculated by multiplying your home’s assessed value by the local tax rate (also called a mill rate). Here’s a simplified example:
- Assessed home value: $300,000
- Local tax rate: 1.25%
- Annual property tax: $3,750
Keep in mind, assessed value isn’t always the same as market value. Some areas reassess annually, others less frequently. Your tax bill can fluctuate—especially if your home value rises or your local government changes the tax rate.
How Do You Pay Property Taxes?
Most homeowners don’t pay their property tax bill directly. Instead, your lender likely collects it monthly as part of your mortgage payment and holds the funds in an escrow account. When the tax bill comes due—usually once or twice a year—your lender pays it on your behalf from that escrow.
This setup helps ensure the bill gets paid on time (and avoids penalties), but it also means your monthly mortgage payment includes more than just principal and interest—it includes property taxes (and likely insurance) too.
Why Property Tax Matters for Affordability
Here’s the part many buyers overlook: property tax can greatly impact your monthly cost of owning a home.
That charming home with the perfect layout might come with a surprisingly high tax bill if it's in a district with higher rates or recent reassessments. On the flip side, a slightly less expensive home in a high-tax area might end up costing more each month than you expect.
In short, two homes with the same sales price can have very different monthly costs based on property tax alone.
Can Property Taxes Change Over Time?
Yes—they can go up. If your city or county raises tax rates, or if your home is reassessed at a higher value, your property tax bill will increase. Local improvements (like new schools or infrastructure projects) can also lead to higher taxes.
On the other hand, some jurisdictions offer homestead exemptions, tax caps, or discounts for seniors, veterans, or disabled homeowners. It’s worth looking into what local exemptions you may qualify for.
What You Can Do as a Buyer
Ask about the current property tax amount when looking at homes. Your real estate agent or lender can help you estimate monthly costs.
Look into how often the area reassesses property values. This gives you a sense of how often your taxes might change.
Understand what’s included in your monthly payment. If your loan includes escrow for taxes and insurance, you'll want to know what portion of your payment is going toward those.
Final Thoughts
Property tax isn’t just a line item—it’s a key part of your total home cost. Understanding how it works can help you avoid surprises down the road and make a more informed homebuying decision.
If you’re thinking about buying, or just want to understand how property tax fits into your budget, I’m always here to help you break it down.
Let’s talk through it—reach out any time.
About Ruoff Mortgage
At Ruoff Mortgage, we understand that buying a home is one of life’s biggest moments – not just as a financial decision, but a personal one. For more than 41 years, we’ve proudly helped families turn their dreams into reality. From our roots in northeast Indiana to now serving homebuyers throughout the Midwest, our focus has stayed the same: delivering exceptional service rooted in care, speed, and community. With an average 15-day clear-to-close time, our team is here to make your journey to homeownership as smooth and stress-free as possible. When you're ready to take the next step, we’re here to walk with you, every step of the way.
