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Nov 2016

How Much Will My Property Tax and Insurance Payment Be?

Now that you’re a property owner or considering becoming one in the near future, you may be wondering how property taxes and homeowners insurance premiums are calculated. It’s good to know this so that you can [anticipate all of the costs associated with . Let’s talk about property taxes first.

Almost all property, such as land, buildings, or houses is subject to property tax. Your personal property, such as the contents of your home, is not assessed property taxes.

Why you pay property taxes

Property taxes help your local, state, and federal governments fund education, emergency services, transportation, parks, libraries, and other recreational activities.

Government councils, boards, and other legislators meet at least once a year to decide how much is needed for the upcoming year to cover the cost of any improvements, construction, upkeep, and maintenance of the items mentioned above.

They decide on a rate that is assessed as a tax and paid by homeowners in the communities. Your tax dollars are used within your community and some of the improvements may even increase your home value.

How property value is determined for tax purposes

A tax assessor reviews all of the fair market property values in an area to establish an overall value of property in your area.

Your property tax is based on your assessed property value and your tax rate. You may see the words “ad valorem” tax, which just means that it’s based on value.

Calculating the tax rate

So, the first thing that impacts how much your property tax will cost is the tax rate — called a mill levy. A mill levy is the assessed tax rate used by local governments. The mill levy is determined by taking the amount of revenue a government needs and dividing it by the total value of property within that jurisdiction. One mill equals 1/10th of one cent. For each $1,000 of property value, one mill equals one dollar in property tax. All of the mill levies for an area are added together to make up the total mill rate.

Calculating property tax

Once you know your mill rate, you’ll need to know your property value to calculate your property tax amount. You can get your property value from the tax assessor’s office or from your most recent appraisal showing the market value of your property. Many tax assessors have websites where you can look up the tax value of your property.

Property tax is calculated by multiplying the assessed property value by the mill rate and then dividing by $1,000.

Tax rates may change as the governments in your area determine that they need more funds to operate. All of the items that determine your property tax amount are detailed on your tax bill.

How often you pay property taxes is determined by the locality. You may be asked to pay taxes quarterly, semi-annually, or annually.

Let's look at an example

Your community has a school district, a county government, and a city government who have determined how much they need to operate for the next year. They calculated their mill levies by taking the total revenue needed and then divided it by the total value of property in your community.

The school district has determined a mill levy of 1%. The county needs 3%. The city needs .5%. The total mill rate is 4.5 (1 + 3 + .5).

Your total property value is $200,000, which includes the land and your home.

Your property tax is $200,000 X 4.5/$1000 = $900.

You may be eligible for an exemption

Some states give you a tax break on property taxes in the form of a homestead exemption. The exemption allows you to shelter some of your property value from being assessed a tax.

For example, if you live in a state that gives you a tax exemption on the first $50,000 of your home’s value and your home is worth $250,000, you’ll only be taxed on $200,000.

Check with your tax assessor’s office to see if you’re eligible for a homestead exemption.

Now, let’s look at homeowner's insurance.

Many factors impact the cost of homeowners insurance

How much you’ll pay for your homeowners insurance depends on many factors such as the value of the home, how much coverage you need, the deductible, the type of coverage you need, and the claims history of the area where the home is located, just to name a few.

Your insurance agent also takes into consideration discounts for bundling policies, discounts for where you work, and your credit score.

The cost of homeowners insurance is based on the replacement cost of the home and not the purchase price.

This means that the home’s value is established by an appraisal method that estimates how much it would cost to rebuild or repair your home to get it back to its original condition after a disaster or damage.

The national average is $95.51 per square foot, but may be different for where your home is located.

If you’re in the early stages of home buying, you can ask your real estate agent to ask the seller what they pay for their homeowners insurance to get an idea of how much you may have to pay. According to, the average annual cost of homeowners insurance in 2016 is $952.

Budgeting for tax and insurance payment

The good news is that if your lender has established an escrow account for you, you’ll pay 1/12th of your tax and insurance bills each month as part of your monthly mortgage payment. Your lender will make your tax and insurance payments on your behalf as they come due.

Once a year, they’ll adjust your monthly payment to reflect any changes to your tax and insurance amounts.

Unfortunately, your lender has no control over the cost of property taxes and homeowners insurance. If you have questions or disputes about the amount being paid, you’ll need to reach out to the tax assessor’s office for your property taxes and to your insurance company for the homeowners insurance. If you’re just starting your home buying journey, please feel free to reach out to a mortgage banker to find out more about the loan process or if you have any questions.