Property Tax

Property Tax

When you purchase a home, you become responsible for paying property taxes on it. These taxes are levied by the governing body of the area—whether federal, state, local, or municipal—and the amount you owe is typically based on the assessed value of the property and the land it occupies.

Property tax payments have led to the creation of escrow accounts. In this arrangement, lenders include an additional amount in your monthly mortgage payments that accumulates in an escrow account specifically designated for paying property taxes. These funds are held until they are used to cover annual property tax bills. At the end of each year, lenders are required to provide you with a statement detailing the activity of your escrow account, including the amount allocated towards property taxes and other expenses like insurance.

Lenders are particularly concerned about your property taxes because they can represent a liability. If you are unable to repay your mortgage and the lender forecloses on your property, they will be responsible for any unpaid property tax obligations that were originally yours.

This responsibility is also why failing to pay property taxes can be considered a default. It could potentially lead to foreclosure, even if you are consistently making your principal and interest payments. Understanding your property tax obligations is crucial for maintaining ownership of your home and ensuring you meet all financial responsibilities related to your mortgage.

FHA Minimum Standards

HUD requires that homes financed with FHA mortgages meet minimum standards. The property must be safe, secure, and sound for the loan to be approved.

FHA Handbook

FHA home loans have specific rules that lenders must ensure the loans are insured by the U.S. government. Rules compiled in a reference book called HUD 4000.1

HUD-1 Settlement Statement

HUD-1 Settlement Statement outlined home loan terms but was replaced by the Closing Disclosure form in October 2015 by the Consumer Financial Protection Bureau.

Appraisal

When you apply for a home loan, the lender needs an appraisal to check the home’s value. An inspection and comparisons with similar homes nearby determine this.

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