Property Taxes When Buying a Home: 7 Key Facts Every Buyer Must Know

Buying a home is a major milestone—but along with your mortgage, insurance, and maintenance, there’s one key cost every homeowner needs to understand: property taxes when buying a home. If you’re a first-time buyer, the concept might feel confusing at first. Who do you pay? How much will it cost? And are property taxes due before or after you move in?

This guide will walk you through what property taxes are, how they’re calculated, when they’re paid, and what you need to know before you buy a home.

What Are Property Taxes?

Property taxes are annual fees that homeowners pay to local governments, typically based on the assessed value of their home and land.

These taxes help fund essential community services like:

• Public schools
• Police and fire departments
• Local roads and infrastructure
• Parks and recreation programs

Every city, county, or municipality has its own property tax rate, which is applied to the assessed value of your property—not necessarily the price you paid for it. The local assessor determines this value, usually on an annual or biannual basis.

Property Taxes When Buying a Home: What You’ll Pay at Closing

Do Buyers Pay Property Taxes at Closing?

Yes, buyers usually pay a prorated portion of property taxes at closing. That means you’ll cover your share of the property taxes when buying a home for the time you’ll own the home during the current tax year.

Here’s how it works:
Let’s say the seller has already paid the full year’s property taxes, and you’re buying the home in June. The closing documents will include a prorated refund to the seller for the portion of the year they no longer own the property. You’ll effectively “reimburse” them for the taxes covering June through December.

If property taxes haven’t yet been paid, your prorated portion will go toward the upcoming bill. Either way, you’ll see this amount listed as part of your closing costs.

Are Property Taxes Always Included in Closing Costs?

They usually are—but the exact amount can vary depending on:

• Your closing date
• The tax schedule for your area (annually, semiannually, quarterly)
• Whether the seller has already paid the taxes for the year

Your Closing Disclosure, a document your lender must provide before closing, will break down exactly how the property taxes when buying a home are calculated and collected at closing.

How Do You Pay Property Taxes?

Two Common Ways to Pay Property Taxes

1. Directly to your local tax authority: Without escrow, you’re responsible for submitting your tax payment directly depending on your local government’s billing cycle.
2. Through an escrow account (via your mortgage lender): If you set up an escrow account, your lender collects a portion of your property taxes when buying a home each month and pays the taxes on your behalf when they’re due.

How Much Will Property Taxes Cost?

Property taxes when buying a home can significantly impact your total monthly housing cost. These taxes are calculated based on the assessed value of your property, multiplied by your local property tax rate.

To estimate your property taxes:

• Visit your county assessor’s website
• Ask your real estate agent
• Review public property tax records for comparable homes in the area

Remember, the assessed value might differ from your purchase price. Some counties reassess homes upon sale, while others use different valuation cycles.

Why Property Taxes Matter for Homebuyers

1. They Influence Your Monthly Payment
   • Property taxes are included in your DTI when buying a home, as they’re part of your monthly mortgage payment. This affects affordability and your overall monthly budget.
2. They Can Rise Over Time
   • Even with a fixed-rate mortgage, property taxes can increase due to reassessments or higher tax rates, impacting your future payments.
3. They Affect Loan Approval and Budgeting
   • Lenders factor in property taxes when buying a home as part of your debt-to-income (DTI) ratio. Higher taxes can reduce the loan amount you qualify for or stretch your monthly affordability.

Interested in learning more about the steps needed for financial readiness before buying a home? Read more in our blog, “5 Financial Steps to Take for Mortgage Financial Readiness.”

Plan for Property Taxes When Buying a Home

Understanding property taxes is essential for making a smart, well-prepared home purchase. From estimating your monthly payments to planning for closing costs, knowing how property taxes work will help you avoid surprises and stay on budget.

Whether you’re buying your first home or your forever home, take the time to research local tax rates, ask your mortgage banker questions during the buying process, and plan ahead for future increases. It’s one more way to step into homeownership with confidence and keep your finances on solid ground.

FAQs: Property Taxes When Buying a Home

Do first-time homebuyers pay property taxes?

Yes. All homeowners, including first-time buyers, are responsible for property taxes from the day they take ownership.

Are property taxes the same everywhere?

No. Property taxes when buying a home vary widely by city, county, and state. Always check the rate in the specific area you’re buying.

Can property taxes go up after I buy a house?

Yes. Property tax bills can increase due to changes in assessed value or local tax rates.

What happens if I don’t pay my property taxes?

Unpaid property taxes can result in penalties, liens, or foreclosure. Many lenders require escrow accounts to avoid this risk.

Do renters pay property taxes?

Not directly, but landlords typically include the cost of property taxes in the rent amount.

What are homestead exemptions?

Many taxing authorities offer homestead exemptions for a primary residence that results in a lower tax bill. Homeowners must apply for this homestead exemption. As part of your purchase process for a primary residence, ensure you obtain the paperwork from the taxing authority needed to apply for the homestead exemption and submit it as soon as possible after closing. Depending on where you are purchasing and the homestead exemption, this could result in significant savings.