As home prices continue to flirt with near record highs, the cost of property taxes and hazard insurance can be overbearing. If you purchase a million dollar home these days, you can expect to pay around $20,000 or more annually for taxes and insurance.
That’s a large chunk of change, especially considering million-dollar homes in California are the norm for many popular metropolitan areas. Factor in that most people buying these caliber homes aren’t necessarily multi-millionaires either.
The property tax rate does vary by state, but as a general rule you can assume 1.5 percent to stay on the safe side, though it can be as low as 1 percent or as high as 3 percent. Hazard insurance is about 0.5 percent, so estimate that a $500,000 home will cost you roughly $2,500 a year.
To find out the exact property tax rate in your area, contact your county tax collector for an estimate of your fully assessed property taxes. Most counties reassess the tax rate each year, and the number is likely to be higher than what the previous owners paid. Taxes are also based on the purchase price, not the loan amount!
If possible, try to find out exactly how much insurance coverage you need by contacting the bank or mortgage lender directly. It can vary widely, and the earlier you know, the better you’ll be able to estimate your true housing expenses/mortgage payment.
Make sure you factor in these expenses, as well as private mortgage insurance if applicable, and any other closing costs that you are required to pay. Just because you’re in an option-arm doesn’t mean you can avoid paying your taxes and insurance in full each month.
Many of these costs were overlooked when pushy mortgage brokers squeezed overzealous homeowners into homes they later found out they couldn’t afford. Make sure you do your homework to avoid defaulting on your mortgage or worse, foreclosing on your home.
Remember, those ads you see banks and lenders advertise with the super low monthly payments don’t include taxes and insurance, and could even amortize negatively.