Buying a new home is an exciting venture, but recent trends suggest that nearly three-quarters of new homeowners may encounter unexpected financial bumps along the way. According to a 2023 survey by Real Estate Witch, 33% of new homeowners were caught off guard by property taxes, shedding light on a common gripe in the housing market.
The surge in newly built homes, now comprising 30% of the market compared to the typical 10% to 20%, as reported by the National Association of Realtors, brings this issue to the forefront. Melissa Cohn, regional vice president at William Raveis Mortgage, emphasizes, “Buyers need to understand that real estate taxes... are not static. They can change on an annual basis.”
So why do property taxes pose a challenge for new builds? Unlike existing homes, new constructions lack a tax history, leaving lenders to estimate taxes based on factors like the home's value and local tax rates. Brian Nevins, a sales manager at Bay Equity, explains various methods lenders use for this estimation, highlighting the potential discrepancies that may arise.
The trouble often begins when the county reassesses the property for taxation, typically within a year of construction completion. This reassessment could reveal a shortage in the homeowner's escrow account, leading to unexpected bills. If unable to pay upfront, homeowners may find themselves with increased mortgage payments to cover the shortfall.
To avoid such surprises, experts recommend thorough research before purchasing. Understanding the local tax assessment cycle and consulting with knowledgeable professionals can provide valuable insights. Veronica Fuentes, a certified financial planner at Northwestern Mutual, suggests utilizing real estate sites to gauge potential taxes cautiously, reminding buyers that listed taxes reflect current owners' payments, not necessarily future ones.
As the housing market continues to evolve, prospective homeowners must arm themselves with knowledge to navigate potential pitfalls. By staying informed and proactive, buyers can mitigate the risk of property tax surprises and make confident decisions about their new home investments.