Property taxes are an unavoidable responsibility every Texas homeowner needs to fulfill. Due to the state’s lack of personal income tax, the property taxes in Texas are used to fund local upkeep, maintenance, schools, and law enforcement – to name a few.
While every resident must pay property taxes, the amount will differ based on various factors, including appraisal value, where in Texas you live, and when you close on the sale of your home or property. When purchasing your first home, property taxes at closing may not be something you pay much attention to, but you may want to. Your lender will likely escrow for them at closing, and while the buyer is generally responsible for some amount, the exact amount is dependent on how closing costs, property taxes, and other fees are calculated. Escrow is placing funds in a trust or the custody of a third party, such as a real estate lawyer, until certain conditions have been met.
Fortunately, you will not have to worry too much about calculating the costs and apportioning them to yourself or the other party, but it is still a good idea to be familiar with the process.
We’ve put together this guide to help first-time homebuyers understand how escrowed property taxes are generally handled at closing in Texas.
Prorated Bills for Sellers and Buyers
As property taxes are paid in arrears in Texas, a typical real estate transaction involves the buyer and seller only paying property taxes for the period of time each party owned the property. While it may seem complicated for sellers and buyers at first, dividing the tax burden at closing is quite simple.
To put it in simple terms, the seller will be responsible for the property tax balance that accrued from the beginning of the tax year until the date of closing, and the buyer will be responsible for property taxes that are due for the period after the closing date. This is a process called proration.
Proration is the process of dividing or distributing costs proportionately, as determined by factors such as time or the number of people responsible for a particular debt. In the context of a real estate sale, proration means dividing the costs - particularly the property tax obligations, between the seller and buyer. Both parties share the responsibility for the taxes, and the amount each is required to pay is calculated based on the number of days they owned the property during the tax year.
The seller remains responsible for paying all property taxes right up until the day of closing The buyer assumes responsibility for the property’s tax obligations on the day of closing, inclusive of any back taxes the seller may not have paid.
In cases where the seller has already paid the entire year’s taxes, the buyer is usually required to reimburse the seller. If the seller has not paid the property taxes, he or she should be charged their prorated share in a credit to the buyer.
In Texas, the exact amount owed in taxes on a property is unknown until the home is appraised again and taxes become due in October. Therefore, when closing is completed before taxes are due, an estimate is used to determine the prorated amounts owed by each party. The previous year’s taxes are generally used as a guide to provide the estimated payment.
Calculating proration amounts is fairly straightforward; it all depends on the date on which the sale is completed. If a property is closed before April 1st, the approximate date that CADs release appraised values, the prior year’s taxes are used for proration. However, if the sale is completed after that date but before tax bills are sent out in October, prorations are based on the current market value multiplied by the prior year’s rates. Once actual tax bills become available, prorations can easily be made based on the actual amount due.
Who Pays the Property Taxes?
There are a lot of fees involved in the process of closing a home sale. The seller is responsible for some fees, but most of them are typically paid by the buyer. Closing costs include property taxes, which can be a significant sum of money. Since real estate purchases boil down to the contract, who pays the property taxes when a house is sold depends on the terms outlined in the agreement.
How Much Are Property Taxes at Closing in Texas?
As mentioned previously, depending on the closing date and prorating, it can be challenging to determine the exact amount of property taxes due. Thankfully, your lender or title company will provide you with a “cash due at closing” document that considers all these numbers. Thankfully, your lender or title company will provide you with a “cash due at closing” document that considers all these numbers. Your lender typically includes a closing cost estimate with their bid to fund your loan.
About AFIC
American Finance & Investment Co., Inc. (AFIC) is an OCCC-registered property tax lender. We offer our clients an affordable, hassle-free way to manage their Texas property taxes. We can ensure that your account with the local government tax office is paid in full and will work out a manageable repayment plan for you. AFIC can provide you with an instant quote by completing the form on our homepage. For qualifying properties, we can help you pay off your delinquent taxes and offer you the following benefits:
- Quick and completely online process
- No money down
- No credit check
- Free 30-day rate match
- Match competitors and beat their rate by 1%
- Avoid high penalties and foreclosure
We pride ourselves on finding solutions to suit the unique needs of our clients. If you would like to discuss our property tax loans and any additional advice on the requirements of your local tax authorities and the details of your property taxes, please contact our experienced team at AFIC today.
Ernest Eisenberg, President of American Finance & Investment Co., Inc. (AFIC), brings a wealth of expertise in non-traditional financing, including property tax loans and non-bank mortgage solutions. His vision is characterized by a commitment to offering flexible financing solutions to Texas property owners.
