This Is The Most Important (Hidden) Number To Know When You Shop For A House
Written by Cassandra Garnett
June 03, 2018 |
Hint: it's not your interest rate or your credit score. In fact, this hidden number might cost you more than the price of your home in just 25 years.
Homes come with all kinds of surprises. Unfortunately, when it comes to money, the surprises are almost always disappointing. Maintenance costs like a new roof can cost over $5,000.00, and no one is ever going to notice it. Your flooring wears down over time as does your kitchen counter. But one cost that stays with you forever and increases alongside the value of your home is the one hidden cost you probably pay almost no attention to when shopping for a new home.
That hidden cost is property tax.
If you live in a state with average property tax, you will pay 0.98% per year in property taxes. And that does not seem too bad until you consider this: Your property tax is a percentage of your property's value, which is assessed annually. That means that as your property's market value increases, so too does your property tax bill.
Let's assume you are an average American who has a take home pay of $50,183.15 and a home with a market value of $223,434.34. Based on data from the U.S. Census, the average property tax rate in the United States is 0.98%. At that property tax rate, you will pay $229,062.33 after 35 years of homeownership, which is more than the original purchase price of the house!
And what if you live in a state that is worse than average? New Jersey has a higher than average property tax rate at 1.99%. It also has a higher than average home price of $381,242.70. With numbers like those, you'll pay $7,601 in property tax. And because the annual property tax rate is higher than the national average, it takes less time for your property tax payments to exceed the original purchase price of the house. In the case of New Jersey, it only takes 25 years to pay $406,390.82 in property taxes. That is 10 years sooner than the national average!
If you happen to live in Hawaii, you'll enjoy a very low average property tax rate of 0.23% per year. The good news is that even after 40 years of homeownership, you will not have paid even 33% the original purchase price of the home in property taxes. The bad news is that with an average home price of $620,952.42, you will still be out $1,459 this year in property taxes.
If you want to minimize your property tax burden, be sure to check out 10 Debt-Friendly States for Homeowners. One of the leaders is Alabama. With a property tax rate of just 0.48% coupled with an average home price of $115,390.56, you will only be out $550.00 this year in property taxes. And after 40 years you will not have paid as much in property taxes as you did for the original property, shelling out just $78,804.29.
Summary
When looking for a home, it's like the saying goes: the 3 most important things in real estate are: location, location, location. If you choose to live in a state with a higher than average property tax rate, you will spend as much on property taxes over 25 years as you did on the original property itself. So when you're searching for a new home, don't over look the hidden costs of property tax. It may be the most important number to know.
Are you living in a state with a low property tax? Did you consider property taxes when you purchased your property?