The Hidden Costs of Buying a Newly Built Home

When purchasing a new home, especially a newly built one, it is not uncommon for homeowners to face financial surprises. A recent survey from Real Estate Witch found that nearly 75% of new homebuyers had regrets about their purchase, with property taxes being the most common gripe, surprising 33% of new owners. The initial property tax rates for newly constructed homes are often based on estimates, which can lead to significant changes after the purchase. This can be particularly shocking for homeowners who have already stretched their budgets to afford a home in the current market. According to the National Association of Realtors, newly built homes now make up 30% of the current market, a significant increase from the typical 10% to 20%.

Unlike previously owned homes, new builds lack a tax bill because there is no house to assess yet. Instead, mortgage lenders will typically use an older tax rate from the area or an estimated tax rate to calculate the owner’s monthly payment. The calculation can vary by lender, with some using a percentage of the sales price of the home for property taxes, while others multiply the percentage by local tax rates. Initially, homeowners will pay the estimated property tax rate into escrow, but the actual property tax rate will be determined by the county office after assessing the value of the new house. This reassessment can result in a shortage in the escrow account, meaning the homeowner owes more property taxes than originally expected. In such cases, the lender usually pays the owed taxes, which are then repaid by the homeowner through an increased mortgage payment.

Potential homebuyers need to be aware of the potential for increased costs after purchasing a newly built home. Real estate taxes are not static and can change on an annual basis. It is crucial to do thorough research before buying a home in an unfamiliar area to understand how property taxes are assessed and what the reassessment formula is based on. Consulting with a local loan officer who is familiar with the area can provide valuable insights into the potential tax implications of purchasing a new home. Additionally, looking at the property taxes of similar homes in the neighborhood that have been around for a year can give you a rough estimate of what your taxes might be. However, it is essential to exercise caution, as the online listings may reflect the current owner’s taxes rather than what you will pay as the new owner.

Purchasing a newly built home can come with hidden costs, particularly in terms of property taxes. Being aware of the potential for changes in tax rates and doing thorough research before buying can help mitigate financial surprises down the line. It is essential for potential homeowners to educate themselves about the property tax assessment process in their area and consult with local experts to make informed decisions when buying a newly built home.