Why Your Property Taxes Go Up After Buying a Home

When buying a home in West Michigan or anywhere else, new homeowners are often surprised to see their property taxes increase. But this is a common occurrence that stems from how property taxes are assessed and recalculated after a home purchase. Here’s what you need to know about why this happens and what factors play a role.

What Are Property Taxes?

Property taxes are an annual fee that homeowners pay, based on the value of their property. These taxes help fund local services like schools, road maintenance, and public safety. While the listing of a home might show last year’s tax rate, property taxes are reassessed when a new buyer takes ownership. This reassessment is based on the home’s current value, which can be higher than the value when the previous owner lived there.

In Michigan, the state uses what’s called the State Equalized Value (SEV) to determine property taxes. When you buy a home, the tax value is “uncapped,” meaning it resets to reflect the home’s full market value. This is why taxes often increase after a sale.

Why Did My Mortgage Payment Go Up?

Your mortgage payment consists of more than just your loan’s principal and interest. If you have an escrow account, your monthly payment also includes property taxes and homeowner’s insurance. If your property taxes rise due to the uncapping of the SEV, your escrow payment will go up, increasing your overall monthly mortgage payment. It’s not that your mortgage principal changed; it’s the added costs of maintaining your escrow account.

Why Did My Property Taxes Change?

Property taxes fluctuate because the assessed value of your home changes over time. This value is influenced by factors like home improvements, the condition of the home, and even the sale prices of comparable homes in your area.

Local factors also play a role. Property taxes often help fund community needs, such as schools and infrastructure, so if the need for funding increases, so might your tax rate.

Certain homeowners, such as disabled veterans or seniors, may qualify for property tax exemptions in Michigan. If you believe your property was unfairly assessed, you can also seek a reassessment.

How Much Can My Property Taxes Increase Each Year?

Michigan law limits how much property taxes can rise each year. The taxable value can only increase by the rate of inflation or 5%, whichever is lower. However, in the first year after you buy a home, this cap doesn’t apply. The SEV determines your property tax bill, which may result in a significant tax increase during that first year.

Homeowners Insurance Costs

Like property taxes, your homeowners insurance is a part of your escrow account. While property taxes fund community services, homeowners insurance protects your home and its contents. If you’ve noticed an increase in your monthly payment, it could also be due to rising insurance premiums. Both of these costs are reviewed and adjusted annually by your mortgage lender, which can lead to changes in your escrow payment.

What If I Refinance My Home?

Refinancing your home can reduce your monthly mortgage payments, lower interest rates, or provide you with cash through your home’s equity. However, refinancing itself doesn’t directly impact property taxes. The only way refinancing might affect your taxes is if you use funds from a cash-out refinance to make improvements to your home, which would increase the assessed value and potentially raise your taxes.

Can My Mortgage Payment Go Down?

Yes, your mortgage payment can decrease if your property taxes or homeowners insurance premiums decrease. If you’re paying for private mortgage insurance (PMI), eliminating it once you’ve built enough equity can also lower your payments.

How Can I Calculate My Property Taxes in Michigan?

To estimate your property taxes in Michigan, you can use the state’s Property Tax Estimator Toolhttps://www.michigan.gov/taxes/property/estimator, which takes into account the home’s value and the tax rate in your specific county. This tool can give you a clearer idea of what to expect in property taxes, especially if you’re purchasing a new home.

Tips for Managing Your Monthly Mortgage Payment

If you’re looking to lower your mortgage payment, here are a few tips:

• Improve Your Credit Score: A higher credit score often leads to better loan terms.
• Increase Your Down Payment: The larger the down payment, the less you’ll owe in monthly mortgage payments.
• Shop for Better Insurance: Compare homeowners insurance rates to get the best deal.
• Make Extra Principal Payments: Paying extra toward your principal can reduce the overall interest you’ll pay and help lower your monthly payments in the long run.
• Request a Reassessment: If property values in your area have decreased, consider asking for a reassessment to potentially lower your taxes.

Ready to Learn More?

If you’re considering buying a new home, understanding the process and how property taxes work is crucial for planning. If you have questions about your specific situation, Core Realty Partners is here to help. Contact one of our agents today to discuss your options and make informed decisions during your home new home search.