Calculating the costs of home ownership is often complex. As a new homeowner, you might have a few questions. For example, are property taxes included in the mortgage?
Champions Mortgage helps clients afford houses and we assist with purchases and cash-out refinance in Texas. We answered this common question below to help you navigate your future expenses.
How Mortgages Work
When you purchased your home, you likely took out a loan to cover the costs that you can’t immediately provide. You pay for that loan through a routine mortgage payment. Some mortgage payments include other related expenses, like homeowners’ insurance and property taxes.
Mortgage rates in 2024 are expected to remain the same or drop slightly. Therefore, you might enjoy a predictable, if not more affordable, year if you don’t have a fixed mortgage agreement. So are property taxes included in the mortgage for every loan?
Are Property Taxes Included in the Mortgage?
Property taxes are sometimes included in the mortgage but not always. Tax inclusion depends on the type of loan you used. Loan types that typically include property tax estimates include:
- Federal Housing Administration loans
- The United States Department of Agriculture loans
- Veteran Affairs loans
Essentially, most government-backed loans that require an escrow account will include the tax bill in the monthly or annual payment.
What Happens If the Estimate Is Incorrect?
Most mortgage agreements place the responsibility of finding the tax estimate on the lender. Therefore, you don’t have to worry about calculating the costs or making errors. However, the lender might sometimes over or underestimate the total in rare circumstances. How do you handle the difference?
Tax Underpayments
Underpayments occur when the lender underestimates the total tax cost. They will discover the discrepancy when your mortgage payment hits the escrow account. Then, they cover the difference immediately.
Your lender will inform you about the miscalculation and give you two options. The first option allows you to pay the difference back immediately. Alternatively, you can pay the difference back through each subsequent monthly payment over a year.
Tax Overpayments
What happens if you pay too much property taxes? Your lender may retain the surplus in the escrow account for excesses of $50 or less. You can use overpayments over $50 to pay for future expenses or ask for the lender to return them to your personal account.
What Happens If You Pay Off Your Mortgage?
Eventually, you might pay off the loan and therefore your house. You won’t need a mortgage to cover loan payments, taxes, and insurance coverage. What happens then?
If you pay off your mortgage, you will still incur property taxes. However, you will inherit full responsibility for paying your taxes on time and in full. If you fail to pay, you could become delinquent and risk your property ownership rights.
Without a mortgage, you do not need an escrow account. How will you submit property taxes to keep your ownership in the green? Go to your municipal taxing authority’s website for instructions. You can also speak with a tax advisor on navigating property tax amounts and payment methods.
Contact Champions Mortgage to Learn About Your Options
Are property taxes included in the mortgage? If your loan came from a government agency, it likely does. However, other private loan options may include taxes or insurance at their discretion.
If you want to avoid the responsibility of calculating and paying the tax amount separately, seek lenders who will include these expenses in the mortgage. Call Champions Mortgage at 281-727-2500. Learn about house interest rates in 2024 and other pertinent real estate topics.
