Eric Tyson - Home Buying Kit For Dummies

Using Table 3-1, you can calculate the size of your mortgage payments based on the amount you want to borrow, the loan’s interest rate, and the length (in years) the mortgage payments last. To determine the monthly payment on a mortgage, simply multiply the relevant number from Table 3-1by the size of your mortgage expressed in (divided by) thousands of dollars. For example, if you take out a $150,000, 30-year mortgage at 5.50 percent, multiply 150 by 5.68 (from Table 3-1) to arrive at an $852 monthly payment. (You can access Table 3-1online at www.dummies.com/go/homebuyingkit7e .)

TABLE 3-1Monthly Mortgage Payment Calculator

Use this handy-dandy workspace (reproduced throughout this chapter and available online at www.dummies.com/go/homebuyingkit7e ) to track your estimated homeownership expenses, starting with the mortgage payment:

If you live and breathe, escaping taxes is darn near impossible. When you buy and own a home, your local government (typically through what’s called a county tax collector’s office or an equivalent for your local town) sends you an annual, lump-sum bill for property taxes. Receiving this bill and paying it are never much fun because most communities bill you just once or twice per year. And some homeowners find it aggravating to be paying so much in property taxes on top of all the federal and state income and sales taxes they pay. In case you’re wondering, property taxes go toward expenses of the local community, such as the public schools and snow plowing (for those of us foolish enough to live where the winters are cold). Especially in higher-cost areas with few retail and commercial properties paying taxes, residential property taxes can be quite significant.

Should you make a small down payment (typically defined as less than 20 percent of the purchase price), many lenders insist on property tax and insurance impound accounts. These accounts require you to pay your property taxes and insurance to the lender each month along with your mortgage payment.

Property taxes are typically based on the value of a property. Although an average property tax rate is about 1.5 to 2.0 percent of the property’s purchase price per year, you should understand what the exact rate is in your area. Call the tax collector’s office (you can find the phone number in the government pages section of your local phone directory under such headings as “Tax Collector,” “Treasurer,” or “Assessor”; or enter one of those terms and the name of the municipality where you live into a search engine) in the town where you’re contemplating buying a home and ask what the property tax rate is and what additional fees and assessments may apply.

Be careful to make sure that you’re comparing apples with apples when comparing communities and their property taxes. For example, some communities may nickel-and-dime you for extra assessments for services that are included in the standard property tax bills of other communities.

Real estate listings, which are typically prepared by real estate agents, may list what the current property owner is paying in taxes. But relying on such data to understand what your real estate taxes will be if you buy the property can be financially dangerous. The current owner’s taxes may be based on an outdated and much lower property valuation. Just as it’s dangerous to drive forward by looking in the rearview mirror of your car, you shouldn’t buy a property and budget for property taxes based on the current owner’s taxes. Your property taxes (if you buy the home) will be recalculated based on the price you pay for the property.