As a first time home buyer your list of “firsts” don’t stop once you’re a homeowner. There is the first time you spend the night in your new home. First time hosting a family party. The first time you bring your kids or pets to the house. There’s the first time you realize the tax benefit of being a homeowner. Lastly, you will also remember the first time you receive your tax bill in the mail. Take a deep breath and don’t panic. We’re here to help.
Why You Shouldn’t Worry
Our business focus is helping clients purchase a home by way of financial education. Thus, we often get calls from clients long after they have purchased a home from us. One call that we can expect to get is after their first tax bill has been issued from the government.
The reality is unless you put 20 percent or more down, your taxes are included in your monthly mortgage payment as a part of your escrow account. This means you will not have to write a separate check to pay your first tax bill. The escrow account that you established when you purchased the property was pre-funded to include taxes for the future tax bill. In addition, the monthly payments for the mortgage you have made are helping. They include additional monthly deposits into the escrow account for taxes and homeowner’s insurance.
Prepare For Your Next Bill
It is important to note that having an escrow account doesn’t mean you should throw your tax bill in the trash. Pay attention to the details. Most importantly the amount of taxes you’ll be paying on your home the next coming year. If your taxes were $2,200 the previous year and now they are going up to $2,500, how will that affect your mortgage payment? It is very simple to figure out. Take last year’s total taxes and subtract last year’s and divide by 12. Example: $2,500-$2,200= $300/ 12 = $25.00.
Eventually your mortgage servicing company will do their analysis on your tax bill. You’ll receive a notification that your monthly mortgage payment will be increasing by $25.00 to cover the shortage. It is important that you plan ahead for this because your mortgage company might not notify you until few months later. If they don’t tell you for four months you may have to pay the entire shortage of taxes all at once. It is important to pay attention to the tax bill! This way you can prepare yourself for the increase and start putting funds into your escrow account to cover your potential shortage.