Looking for a home to buy on Long Island? Check out these 5 must-know facts about property taxes before you make an offer. Then rest knowing your days of homeownership will be far less stressful, and you can really relax in a home you’ll love…
1. The Property Taxes Will Go Up
Home buyers cannot only base their math and home purchase decision on the current or past property tax bills on a property. Previous owners may have had a variety of exemptions you may not qualify for. The property may not have been assessed recently, and recent bills may not reflect what you’ll be charged next year. Tax assessments will typically go up in line with the new purchase price. So, if that home hasn’t changed hands in three generations, or it is a new construction property, the jump can be massive. In some cases, there can easily be a $10,000 or more difference the next year.
HOT TIP: In some cases the reverse can also be true. The current owners may not have been challenging their annual property taxes regularly as they should be. They could have been overpaying by thousands of dollars per year. The assessment may be inaccurately high. A local property tax expert can help you evaluate the assessment and appeal the bills so that you can get them dramatically lowered.
2. Dealing with Past Due Taxes
In many cases today, home sellers have not paid their property taxes. They may have a couple of years of back taxes, plus fines and interest penalties. They may not have the money to pay them, nor want to. Sometimes they will try to ask the new buyer to handle any existing debts and liens at closing. If they don’t pay them the property can go into foreclosure and be lost at auction for a fraction of the property value. You need to make sure you are getting clean title with not liens or debts when you close.
Everything in real estate is negotiable. So, if they are really hung up on not paying the taxes, offer less to counter balance that, or meet somewhere in the middle.
3. Prorated Property Taxes & Closing Costs
At the time of your real estate closing you will have to put a prorated amount of property taxes (and insurance) into escrow. This will vary depending on which month you close in. This can change the cash you need to close significantly, above your down payment. Ask your closing agent or attorney about this in advance, and how you might be able to minimize this amount.
4. Total Housing Payments
Remember, you monthly housing costs are not just limited to your principal and interest mortgage payment. You need to at least budget for Principal, Interest, Taxes and Insurance (PITI). This number will be used to qualify you for a home loan if you need one. It is also smart to budget for regular home maintenance and begin putting something aside for major repairs and replacements. Sooner or later everything wears out. If this will be an investment property, make sure you are also counting property management expenses and calculating a reasonable vacancy rate.