Property Taxes and Buying Your First Home

Property taxes are always a concern particularly with first time buyers trying to determine an affordable monthly mortgage payment. Selling in the Metro Detroit area, I often get asked ‘what are the taxes' as they refer to the amount published in the multiple listing service (MLS). While this is a very important question, the amount listed should not be relied on. Even in the same city, taxes can vary considerably from property to property.

The first thing I check is whether the home has a homestead exemption. This is often confusing and one of the first things I explain to buyers when discussing property tax. With so many foreclosures on the market, a home has often lost its homestead exemption. When a buyer purchases a home, it is declared as their primary residence unless someone owns more than one home-like a summer home. This allows the home to be taxed on roughly half it's appraised value (in most cities). Each city votes on millage rates they are used to calculate the amount a property may be taxed.

The homestead exemption is often lost when it goes to foreclosure and no longer privately owned. Investors are buying property and fixing up homes for resale and the exemption can be lost as well. Taxes are almost double when there is no homestead exemption. When a home is closed after May 1, a buyer must wait a year before they can declare the "primary" residence exemption. So, for the first year, taxes are considerably higher. Since summer taxes are generally higher than winter, this can make a noticeable difference in a mortgage payment. A buyer can get this back by filing for reimbursement for the first year at a later date.

Another consideration when confirming taxes is the length of time the seller has owned the home. If they have owned the home for 10 years or more, they are being taxed on an amount lower than the state equalized value (SEV) which is basically the appraised value. In a decreasing market, this is currently the subject of property tax appeals as the SEV is not necessarily based on current appraised value. A buyer should always have their Realtor confirm the taxes by checking public record information and then calculate taxes based on the millage rates of that city.

When I am working with first time buyers or buyers moving to Metro Detroit, I inform them of millage rates of different cities in the beginning. This often affects which city they may be interested in when taxes are a concern. Millage rates are often calculated by the reputation of the schools. So, if schools are a consideration, buyers are willing to pay the higher property taxes. While this should be taken into account for resale purposes, first time buyers may not be interested and prefer the lower taxes.

If you are a first time buyer, please contact me with questions and visit my other posts:

I found a Home - What Do I offer?

First Time Home Buyer Credit

Working with First Time Buyers

Do You Need A Buyer's Agent?

Royal Oak Michigan Realtor selling Oakland County Real Estate. TishHouse sells Houses - selling Real Estate in Southeastern Michigan with RE/MAX Showcase Homes in Birmingham, Michigan. Helping People in a challenging market by specializing in Short Sales. See what my clients have to say about my extraordinary customer service. Follow me on Twitter.