In addition to making a mortgage payment every month, home ownership also means paying home or property taxes every year along with homeowner’s insurance. They’re no fun, but they’re usually unavoidable. This is a breakdown of those costs related to home ownership:
Home Taxes
Home taxes or property taxes are administered by local governments such as cities or counties. A local property appraiser determines a value of your home and then the local tax collector or treasurer collects those taxes.
How Taxes are Determined
Every piece of property in a particular tax assessment unit (often a city or county) is assessed, though not all properties are taxed. Churches, for example, do not pay property taxes. But a market value is placed on all pieces of property and that figure is reached by determining how much the property would sell for under normal conditions.
The taxing unit in which you live establishes a property tax rate every year. This is usually done in a public hearing before a city council or county commission or similar elected body. Your tax bill then, is based on the assessed value of your home and the current tax rate.
Challenging Your Tax Bill
Most taxing jurisdictions have provisions for you to challenge your tax bill. Usually challenges are based on what property owners perceive to be an inflated value of their property. This is a tricky thing for many homeowners, because having a highly valued home is helpful when it comes to selling your home or security a home equity line of credit.
But when you have to pay taxes based on that value, it’s a different story. Property appraisers will look at things such as the price of similar homes sold in your area, as well as conditions that may have changed during the preceding year. A beachfront home, for example, is typically appraised very highly, but if beach erosion has badly damaged the coastline, that homeowner may see his assessment down from when the beach was healthier.
If you feel you can make a case for lowering your assessment, you can take it up with the local property appraiser’s office. There may be a window of time in which you can challenge your assessment before the tax bills are sent out, so be aware and do your homework to be ready for your challenge.
How Home Taxes are Used
Your homeowners’ tax bill can include a long list of agencies and departments getting a piece of your tax payment. Depending on where you live, your tax bill can include a portion for the local school district as well as for general municipal expenses, such as law enforcement and public safety, public utilities, parks and libraries, roads, and other services. Your tax bill may also be broken out to include special taxing districts to pay for water, sewer and road work specifically in your community.
Why Do You Need Homeowners Insurance
Homeowners insurance covers damage to your home as well as liability protection for injuries or property damage caused by you or members or your family – even pets. If your home is damaged by fire or is robbed, your homeowner’s insurance is there to cover your losses. Most natural disasters are covered, though in some areas, flood insurance and earthquake insurance must be purchased separately.
Insurance covers the structure of your home, your personal belongings, liability protection and temporary living expenses if you are unable to live in your house because of fire damage, for example. And this is why you need homeowners insurance!
Coverage varies from company to company, but typically your coverage for the loss of personal belongings is between 50 and 70 percent of the coverage you have for your home. If you have $200,000 in coverage for the structure of your home, you may be covered for $100,000 to $140,000 for the loss of personal belongings.
How Much Do You Need When it Comes to Homeowners Insurance
You’ll need enough coverage to pay for rebuilding your home, but it’s important to remember that if building codes have changed in your state or county, you may need to rebuild to different standards than were in place when the home was built. Older homes can be a little more complicated to insure, because the features of an older home, such as plaster walls and wooden floors, may not be fully covered. Instead, you may have coverage to pay for the costs of using more contemporary materials or building methods to restore your home.
Rising Homeowners Insurance Costs
In areas that experience a lot of claims, such as Florida with its hurricanes and California with its earthquakes and wildfires, homeowner’s insurance rates tend to climb every year. What makes that situation even harder on homeowners is that insurance companies tend to pull out of higher-risk states, leaving fewer companies from which homeowners can choose.