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If you’re planning to buy a home, setting a budget before even looking at houses will help narrow down properties and avoid overspending. However, many first-time homeowners leave out some critical factors in their calculations, which could have an enormous impact on their finances and the affordability of their house. In addition to maintenance expenses and repairs, you’ll also be responsible for paying property taxes, which could add thousands of dollars per year to the price of the house.

What House Hunters Should Know About Property Taxes

What Is a Property Tax?

Both state and local municipal governments levy a tax on the value of real estate, which is collected on a semi-annual basis. The proceeds collected are used to fund schools, emergency services, road construction, and other vital services for the community. These taxes can also place a significant financial burden on homeowners who forgot to include the cost in their initial budget calculations.

How Property Taxes Are Paid

buy a homeEven though Property Tax payments in our area are due in two payments, they can still be a large amount of money for each payment, when they come due. To make this burden easier, your mortgage lender will estimate your total tax obligation, divide the total by 12, then add the resulting figure to your monthly mortgage payment. The tax payments are kept in a separate escrow account until the end of the year when they're sent to the appropriate agency.

Why Property Taxes Matter

Although the tax percentage may seem low, the additional payments can push an otherwise affordable home out of your reach. For instance, if your monthly housing budget is $1,500, a property assessed at $160,000 with a $1,400 payment may seem like an ideal match. However, even a 1% tax levy on that same house will result in an annual bill of $1,600, adding $133 to the mortgage payment every month. Before you buy a home, it’s important to research local tax rates to ensure your budget includes all the costs of homeownership.

 

If you’re hoping to buy a home in Red Wing, MN, let the professionals at Lawrence Realty Inc. guide you through the market and help you find the perfect property to fit your lifestyle and budget. As a third-generation family owned business, their experienced agents have been serving buyers and sellers throughout the area since 1948, establishing a reputation for local market expertise and taking the time to help you make the right choice. Visit their website now to browse their selection of homes for sale, get more real estate tips on Twitter, or call (651) 388-4745 to start your house hunting adventure today.

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