During my mortgage refinancing journey, I was forced to reevaluate my knowledge on property taxes. This is my first foray into owning property, which means I’ve never paid property taxes before. I’ve gained a good deal of insight into property taxes in the past week and I’ve learned that new construction property taxes are the most confusing of all. For the benefit of my readers and myself, I will now try to regurgitate everything that I’ve learned.
Pay for the Previous Year
The easiest concept to understand is that property taxes are paid one year retroactively. For instance, in 2009 you are making payments for the property taxes of 2008. This fact made my refinancing very confusing. I was supposed to escrow a full year of property taxes even though I had only lived in condo for three months of 2008.
Each piece of property is assigned a pin number. It can take up to 18 months for pin numbers to be assigned to new properties. My building was built on land that had two houses and an apartment complex. The builder was paying property taxes for the three pin numbers corresponding to the three properties it pooled together. It is not until this October that they expect to get pin numbers assigned to each individual condo unit.
Property Taxes at Closing
Property taxes for the remainder of the year are usually escrowed at closing. Part of my closing costs consisted of estimated property taxes that went straight into an escrow account. To estimate this value they took 2% of the purchase price and divided it by 366 to get an estimated daily property tax value. They then multiplied it by 89, which is the number of days I would own the property for 2008.
Paying Property Taxes on a New Construction Condo
As I mentioned in the pin number section, it can get very confusing until the county assigns individual pin numbers. I asked the sales office for the builder how property taxes work. They believe a pin number will be assigned to my individual condo this October. I will be sent a property tax bill. The builder will send me a check for my escrowed money and a check for the portion of the tax bill they owe. I will then deposit these checks and pay the property taxes with a personal check.
A very round about way to pay property taxes if I do say so myself.
Property Taxes and Escrow Accounts
Most people are forced into paying property taxes in monthly installments into an escrow account. To waive this requirement you can pay 1/4 of a point, which for me was about $500. If you waive the escrow requirement, you are expected to save enough money to pay the property tax bill when it arrives.
As a new construction condo, I was paying $100 a month into an escrow account, even though my property taxes will probably require saving $450 a month. Even though I had already built up an escrow for 2008 property taxes, I was still required to pay $100 a month because the bank required a minimum amount. Currently, my new bank only requires $50 per month, however, once the property taxes are assessed in October I imagine my monthly payment will increased accordingly.
Escrow Accounts and Mortgage Refinancing
When I refinanced my mortgage I effectively switched banks from Wells Fargo to Chase. Wells Fargo will send me a check for the entire account value of my escrow account within a month. I have a new escrow account with Chase now.
New construction property taxes are a pain in the butt. After my property taxes are first assessed, it will be significantly easier to understand them. Property taxes should not change significantly from year to year so the monthly allotment going into my escrow should only change minimally. I hope to see no unexpected surprises in the near future with regards to property taxes.
- The Basics of a Mortgage
- End of November 2009 Financial Status
- Financial Goals As Of December 1, 2008
- Deciding When To Refinance Your Mortgage