My husband and I recently bought a condo. At closing, we found out that our taxes would be $150 dollars more each month than was originally estimated. The closing agent and our realtor both said there was nothing that could be done, that the Good Faith Estimate is just that – an estimate – and we had no choice but to pay the higher monthly cost.
My question is: is this kind of thing normal? Is there anything we should have done differently?
I agree that a “Good Faith Estimate” is just that, but this is not the norm. While the loan should always look up the tax bill, which is available to the public, the taxes are subject to change when new bills are issued (annually or semi-annually) and/or during a transfer of property.
Looking ahead, it’s also important to point out that it is normal to have shortages or overages in the monies that are set aside in escrow for taxes, and the bank typically analyzes your account once a year to make any adjustments that may be necessary. I actually got money back this year because tax rates fell in my area.
For those who are about to close on a home or looking to do so, here are a couple things that you can do to empower yourself and make sure that the numbers line up:
The first thing is look up the current property taxes that are in the public domain (as I mentioned). For DC click here for the link. You will need to plug in the square and lot number (which you can get from your realtor).
The second thing you can do is make sure the lender you are using checks out. I would make sure you have several references.
Another thing to keep in mind is that if the home you purchased was just remodeled or renovated, the actual property tax assessment by the city may be outdated… and in some cases, very outdated. I usually estimate that every $100,000 of the properties value is about $1000/year in property taxes. This is just a rule of thumb!
Below is the actual “real estate math” provided by DC:
Class 1 (residential property): For this type of property (which can also include a rental unit) the tax rate would be $0.85. So, if your home is assessed at $100,000, divide $100,000 by 100, which would be $1,000, then multiply by $0.85 by $1,000, which would be be $850 (for the year). Keep in mind that this would be before the homestead or senior citizen deduction).
Class 2 (investment or commercial property): If your property is assessed at a total value of $3 million or less, then your tax rate is $1.65. If your property is, again, assessed at $100,000, divide $100,000 by 100. That amount is $1,000. Then multiply $1.65 by $1,000. Your annual tax is $1,650.
One final note: Be aware of your tax assessment and how your escrow payment is set up. If you notice a discrepancy, notify the mortgage company ASAP so they can adjust it accordingly. Also, if you feel that your property tax assessment is higher than it should be, you can contest it with the city.