How Your Property is Assessed The First Year
When you close on your new build, it is typically only taxed on the land value. Let’s say your land value is $75,000. That’s all you’re being taxed on—this year. But now you’ve built a $500,000 house on that land.
A Heads Up For The Following Year
This means that next year your taxes will be reassessed to take your new home into account. It will probably be reassessed at the value of what you paid for your home—so if you paid $500,000, you will probably be assessed at $500,000. Now you’ve gone from $75,000 as your appraised value to $500,000! If you’ve been paying your monthly taxes in your escrow account for $75,000, that’s not a large amount per month. But when you add the taxes on a $500,000 house to that, the monthly amount goes up quite a bit. Let’s say your principal, interest and the land taxes have been $1500. After reassessment for the value of your home, your payment may now be $3000! If you aren’t ready for this change, you may be shocked!
What You Can Do
There are a couple of different ways you can handle this. First of all, you can ask the lender to go ahead and escrow based on the sales price that you are paying. This means that if you’re paying $500,000, you can ask your lender to value your property as a finished product, rather than just as land. That way, when he puts three months of reserve taxes into your account with the lender at closing, you’ve got that based on your full house value.
Save Your Money
If the lender is not willing to do that, you can start putting your own money aside for that tax bill. What’s going to happen is that the mortgage company is going to send you a note that says, “Hi, Mr. Wilson. You’re short in your escrow, meaning there’s not enough money for us to pay your taxes. We’re going to need you to either send us the difference, or we’re going to increase your payment to offset the shortage. Plus, we’re going to reassess your new payment based on last year’s shortage and the new tax bill for this coming year.” Now you’re hit with a huge payment difference if you’re not prepared!
Your Next Step
It’s important to be aware of the taxes you’ll owe on your new build home. If you have any questions about how any of this works, please give us a call!