Daily News And Advice
Everything You Should Know About Property Taxes
When you’re preparing to become a homeowner, there are some things you might not think about as far as the costs of maintaining a home. One of those is property taxes. Property taxes are easy to overlook when you’re calculating your true bottom line.
Local governments use property taxes to cover public services in the community. Property tax revenue goes towards schools, roads, and police and fire departments primarily.
If you own property, you have to pay property taxes. That includes rental properties and property you might have inherited, as well as vacant land.
How Are Property Taxes Calculated?
Your property taxes are calculated based on the tax rate set by your local government and then your property’s assessed value. You use the assessed value of your home and multiply it by your tax rate, and that’s your owed property tax.
What Is Assessed Value?
The assessed value is a term that can bring confusion for some people.
Assessed value is not how much you can sell your house for, nor is it what you bought it for. Terms for those are market or appraised value.
The assessed value of a home or property is set by a property assessor in the local government.
It tends to be lower than market value, which is good because then you pay less on your property taxes.
What is the Property Tax Rate?
Your property tax rate depends on where you live. States with the highest average property tax rates include New Jersey, Illinois and Vermont. The lowest property tax rates are in Hawaii, Alabama, and Colorado.
The national average effective property tax rate is around 1.1% of a home’s value. In Hawaii, the average property tax rate paid is just 0.3% of a home’s value.
In New Jersey, the average property tax paid is 2.21% of home value.
What to Think About When You’re Buying a New House
If you’re searching for a new home, property taxes could be the last thing on your priority list. However, when you have to pay your first mortgage payment they could seem a lot more relevant.
You need to think about what your monthly mortgage payment will be, including your property taxes.
Most financial advisors say that your mortgage payment with your property taxes included should be no more than 25% of your take-home pay. If your property taxes would push you over that when included with your mortgage payment, maybe you should reconsider the house you’re looking at or even the city or town.
For example, you could go to a different town and move from a 2% to a 1% property tax rate, which is a big difference.
How Do You Pay Property Taxes?
Most people’s mortgage payment includes their property tax as well as their homeowner’s insurance.
That’s preferable for the vast majority of homeowners because the bill is spread out over 12 months, rather than having a big bill coming due at the end of the year.
A lender will usually put the money in a separate account, which is an escrow account. Then, they’ll pay the property taxes that are due.
Property taxes are estimated throughout the year, so you could have a refund, or you could end up owing more.
Even if your house is paid for, you still have to pay property taxes, and rather than the lender paying them, it’s up to you.
If you don’t pay your property taxes or get behind, you could lose your home.
If you don’t pay your property taxes on time, penalties vary depending on where you live, but in addition to the risk of foreclosure, you may have to pay hefty penalties.
Finally, when you buy a home, you may be eligible for some other tax breaks related to your property taxes. For example, you can deduct what you pay in property taxes when you file your federal income tax return, as long as you’ve paid by the deadline.
Property taxes aren’t fun to think about, but they are a big part of the puzzle when it comes to deciding where you live and how much house you can afford.
Reasons to Refinance You May Not Know About
When someone thinks of refinancing, most often it’s because that person hears or reads that rates have dropped. Or, the Federal Reserve makes a move at one of its FOMC meetings and decides to lower the Federal Funds rate. That makes news and consumers hear about it. Note, Fed actions won’t directly and immediately affect mortgage rates, but can have an impact. But getting a lower rate is not the only reason to refinance…there are others. What are they?
One of them is to get someone off a mortgage loan that was taken out jointly. This primarily means a couple got married, bought a house together and later on divorced. There might be a formal or informal agreement who will occupy the property but also make the mortgage payments. A formal agreement means who gets what and who pays what and listed and recorded in the divorce decree. The ex-spouse who vacates the property will still have that mortgage payment show up on the credit report. This can hamper the ability to qualify for a new mortgage to buy a new property. Yes, the divorce decree may highlight who is responsible for the old mortgage. But lenders aren’t obligated to erase that payment and approve a home loan for a new mortgage.
Further, lenders that do allow for a loan approval without the debt hit from the old mortgage will also want proof the occupying spouse has been paying the mortgage bill on time each month. If not, the other spouse that’s leaving the property will still not only have the mortgage payment on the credit report but now the credit scores are damaged. The way to avoid any of these situations is to have the occupying spouse qualify for a new mortgage by refinancing the existing one, removing the other spouse from the note and title.
Some mortgage programs have a ‘balloon’ payment. A balloon payment happens at the end of the initial loan term. A balloon loan can have slightly lower interest rates than prevailing fixed rates, thus the allure of the program. The initial period is fixed for say five or seven years and after that period the entire balance of the mortgage will be due. Refinancing out of a mortgage program that has a balloon payment is another reason to refinance that has little to nothing to do with lowering the rate.
Finally, refinancing a note can get someone who agreed to co-sign on a mortgage off the existing note. When some co-signs for a mortgage, it means that person agrees to make the mortgage payments if the other party does not. Often this can be a parent helping out a child buy a first home.
This arrangement should also be managed because the co-signer is not an occupying borrower and payments might be missed only to discover too late that their credit has been damaged without the knowledge of the parents.
Someone can also refinance to change the term of a loan. Switching from a 30 year fixed rate to a 15 year note means lower interest paid over the life of the loan.
Refinancing most often means taking advantage of lower rates, but anytime an existing mortgage is replaced, it’s a refinance, regardless of the reason.
As the federal government years ago attempted to help consumers more easily compare interest rates from multiple lenders, the Annual Percentage Rate, or APR was developed. In theory, this calculation would allow consumers to choose the best deal. But most, including many individual loan officers themselves, stumble when explaining what the APR actually represents. When someone applies for a mortgage, they’ll receive no shortage of paperwork and one of the more prominent pieces included in that paperwork is the Truth in Lending disclosure, or TIL.
The TIL attempts to provide a clear path to help consumers compare rates. Unfortunately, because the APR stands out so much on the TIL, many times the consumer begins to think there’s somewhat of a ‘bait and switch’ going on because the APR will be higher than the actual note rate on the mortgage. The note rate is one of the components used when calculating the monthly payment.
It goes something like this. A consumer gets a rate quote from a loan officer, submits an application and within three days, a host of disclosures are sent over. The APR stands out and will be higher than the initial rate quote. When the consumer then calls the loan officer and asks for an explanation, many loan officers stumble in the response.
Many times, the loan officer can even say, ‘don’t pay any attention to the APR number, it’s just a disclosure we have to provide.’ But that’s the wrong response. The correct response is ‘The APR is the cost of money borrowed expressed as an annual rate.’ That’s it. An experienced loan officer will be able to easily explain this disparity. Nothing more. The APR reflects some closing costs associated with getting the new mortgage. But understanding the APR can be another story.
The disparity between the note rate and the APR shows which lender is charging more lender fees. Two mortgage lenders can quote the very same 30 year rate, but the APR can be different. How does that work? If Lender A and Lender B both quote 3.5% for a 30 year rate, the computed APRs might result in something closer to 3.62% and 3.84%. Still, the monthly payments remain the same, only that Lender B obviously has higher lender fees than Lender A. In this example, Lender A would appear to be the better choice.
Further still, the APR can only be used as a comparison tool when comparing mortgages of the same loan term. An APR for a 20 year fixed can’t be used to compare with a 30 year note. The loan term is a key component when calculating the APR number. The APR number is a valuable tool but only when properly evaluated. When used properly however, the APR does indeed serve consumers well. But when a loan officer insists it’s not that important and has trouble just explaining what it is, it might be time to start looking elsewhere for your financing needs.
The Best Ways to Save Money on a Bathroom Remodel
If you have an outdated bathroom or one that doesn’t function the way you need it to, you might be planning a remodel. However, once you start the process of planning said remodel, it’s very likely you’re going to see it could be more expensive than you thought.
Bathroom remodels, while on a smaller scale, are similar to kitchens in that the costs can add up fast.
It’s important to start with a plan for your dream bathroom and then adjust accordingly as you need to.
A lot of different elements go into a bathroom remodel, like the surfaces, cabinets, hardware, and tile. To stay organized, you might want a spreadsheet where you track your must-haves and their costs.
Along the way, consider the following tips to save money as well.
Be Cautious Before You Change the Footprint
A bathroom remodel can go a long way by changing the finishes and the appearance of what’s already in it but leaving the footprint alone.
The footprint is the layout of your bathroom. It includes things like your walls, plumbing, and the location of your toilet, shower, and bath. It also includes electrical wiring.
If you want to move a tub or shower, for example, this is going to make your remodel significantly more expensive .
You’ll save money by keeping the footprint the same, and you may also be able to do more of the work on your own. In particular, not moving your plumbing is going to be the best way to avoid a very expensive remodel project.
Give Yourself Time and Be Patient
A good way to spend more money than you need to is to make last-minute product decisions. Then, if you find out what you wanted isn’t in stock, you may be in a time crunch so you spend more than you’d planned to.
Give yourself time, and start ordering items well in advance of when you’ll need them, so you aren’t feeling pressured to spend too much and go over budget.
The more time you give yourself, and the more patience you have, the less likely you are to spend more than you plan for.
Refinish Instead of Replacing
If you can refinish certain parts of your bathroom instead of replacing them, you can keep your costs down.
For example, rather than changing your bathtub, maybe you refinish it with a new coating. You can keep your vanity and repaint it and add new hardware instead of replacing it.
If you have shower walls, you can refurbish them too. If your current shower walls are tile, there are a lot of options. For example, you can clean them up and change the grout color.
If you have a vanity that you don’t mind, but you don’t like the countertop, there are some great kits so you can paint it to look like marble or granite, and they’re designed specifically for bathroom sinks.
Be Realistic With the Work You Can Do
Depending on your skill set, you may be able to do a lot of the work on your bathroom yourself, especially if you keep the footprint the same.
However, you need to be honest with yourself and know what you can do versus what you need to outsource.
Yes, hiring someone to do work on your bathroom is going to cost money, but if you try to take on something that’s out of your depth, then you’re probably going to have to pay someone to fix it, and it may cost even more.
Finally, don’t underestimate how much of a difference small changes can make. For example, try changing out your light fixtures and mirrors before you do anything else, and then go from there. You don’t always need an overhaul, even if you initially think you do.
|Mortgage Rates |
Averages as of April 2021:
30 yr. fixed: 3.17%
15 yr. fixed: 2.45%
5/1 yr. adj: 2.84%