Why a homebuyer’s property taxes won’t be the same as the figure stated in home’s listing.

Some homebuyers are caught by surprise when their first property tax bill arrives and it’s higher than the amount stated in the home’s sales listing. Here’s a look at why the property taxes paid by the seller won’t be the same for the buyer.

Property taxes are recalculated at the time of a sale

When a home is listed for sale, the stated property taxes reflect what the current owner pays. Depending on when they bought the house the amount can be significantly less than what a new buyer will pay. In Michigan, property tax increases are limited from year to year in a system designed to keep tax expenses from forcing people out of their homes.

When a home is sold, property taxes for the new homeowner are calculated in part based on the sales price. This is the formula:

Property Taxes = Taxable Value / 1,000 x Your Local Millage Rate

Let’s look at what’s behind the numbers in the formula.

The taxable value changes when the property is sold or improved. When local tax assessors determine taxable value they look to the State Equalized Value (SEV). The SEV is one-half of the home’s market value. In most cases, this will be one half of the purchase price.

Local millage rates vary from municipality to municipality. A mil is a tax of $1 per $1,000 of the taxable value.

Calculating property taxes after a home sale

If you know the local millage rate and the home’s taxable value use the formula above to calculate the new taxes. Alternatively, click over to the State of Michigan’s Property Tax Estimator. Their calculator is set up to estimate taxes based on a specific county, municipality and school district.

Understand your total monthly housing cost

Once you have a good estimate of a home’s annual property tax, divide it by 12 to get the monthly cost.

In addition to property taxes, prospective homebuyers need to understand how much they’ll need each month to cover their mortgage, homeowners insurance and possibly Private Mortgage Insurance (PMI).

Check out our Mortgage and Home Loans webpage or contact a Consumers Mortgage Loan Officer to get all your home financing questions answered.

 

All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.