Author: Jason White

Who is Eligible for a Property Tax Loan?

Property tax loans have helped thousands of Texans save their land and their homes from the tax collector. For nearly 80 years, Texans have used property tax loans to pay their property taxes on their own schedule-a schedule that works for them and their unique personal and financial situation.

If you’ve found yourself researching property tax loans or even gone so far as to consider taking one out, you’re likely interested in knowing exactly what qualifications borrowers must have to qualify for a property tax loan. Additionally, it’s also helpful to know a little about the characteristics that lenders look for in potential borrowers. In that same vein, it also helps to know about characteristics that don’t typically matter in the eyes of most lenders.

Each lender will, of course, closely review every potential borrower’s application to make an eligibility determination before issuing a loan. But with this information, property owners can at least get a sense for where they stand as they begin considering taking out a property tax loan.

Types of property eligible for property tax loans

Property tax loans are available for all types of property in Texas. While lenders typically avoid making loans to pay property tax on personal property such as boats and automobiles, lenders very often issue loans to pay property tax on both residential and commercial real property.

Therefore, property tax loans are equally available to property owners to pay the taxes on their primary residences as they are to help owners pay the taxes on rental property, office buildings, warehouses, or any other commercial or investment property that they may own.

Owners eligible for property tax loans

Property tax loans are available to virtually all property owners in Texas. Regardless of whether they own just a primary residence or a diverse portfolio of investment properties, most Texas property owners can qualify for a property tax loan.

Despite the generally broad availability of property tax loans, there are still a few key criteria that all potential borrowers must satisfy in order to qualify for a loan.

First, the borrower must be at least 18 years of age. Thus, any property owner seeking to apply for a property tax loan should have a piece of identification-preferably some form of Texas state-issued identification, such as a driver’s license-easily accessible so the lender can quickly verify the potential borrower is at least 18 years of age.

On a related note, it is important to point out that the law provides property owners who are over the age of 65 and eligible to claim certain property tax exemptions are not eligible for property tax loans. Rather, the law is written to encourage those property owner to take advantage of special incentives available to them.

Second, the overdue taxes on the property must be at least $3,500. If overdue taxes are less than $3,500, the property owner will not be eligible for a property tax loan. But so long as the amount of overdue tax is at least $3,500, you will very likely be able to find a property tax loan regardless of how much you owe. Indeed, lenders often make loans ranging from this minimum amount to $100,000 or more.

Owners seeking a property tax loan, therefore, should have a copy of their tax bill at the ready both in order to verify that they owe at least $3,500 in overdue taxes and to help the lender know exactly what size loan they need.

Third, the potential borrower must own the property and be able to prove it. Typically this means presenting the lender with a deed to the property on which taxes are owed, which lists the loan applicant as owner of the property.

Characteristics that lenders look for in borrowers

Beyond the three basic criteria set forth above, there are also other characteristics that lenders look for in borrowers. Possessing or lacking these characteristics will not by any means make or break a potential borrower’s application. Rather, these are factors that are more likely to influence the borrower’s interest rate, repayment schedule, and other terms of the loan.

The first and most influential is the borrower’s credit score. We’ll mention a bit more about this in the next section, but before we get there, a person’s credit score is essentially a rating of the borrower’s creditworthiness. That is, a credit score is a numerical indicator of how likely a person is to repay his or her debts. Thus, lenders are extremely interested in their applicants’ credit scores because it gives them a way to gauge the risk of lending money to that person.

A person with a high credit score typically has a very good credit history, entailing few if any late or missed payments, a history of using credit responsibly for an extended period of time, and proportionally low amounts of total debt. Because lending to a person with a high credit score is less risky for the lender as a general matter, borrowers with good credit typically receive lower interest rates and more favorable loan terms overall.

Somewhat related to credit score, lenders will look into the borrower’s overall debt situation. A borrower with large amount of other debt-especially consumer debt like auto loans or credit cards-presents a larger risk to the lender because that borrower will have fewer funds available each month to make his or her property tax payment if the borrower is also paying down an expensive auto loan or high interest credit card each month.

Finally, lenders will also look into the borrower’s employment and other assets the borrower has to ensure the borrower has a way to pay back the loan.

Characteristics that are less important

Although good credit is definitely a plus when it comes to applying for a property tax loan, bad credit will generally not preclude you from getting the property tax loan that you need. Property tax lenders recognize that everyone experiences financial hardship from time to time, and that sometimes all they need to get back on their feet is a little help. For this reason, many lenders are eager to work with their clients to develop a plan that works for them, even if they have less-than-perfect credit.

Additionally, property tax lenders usually don’t mind if a piece of property is encumbered with another type of lien such as a mortgage. To be sure, this isn’t because property tax lenders are carefree. Rather, the law expressly provides that property tax liens take first priority over any other type of lien that may encumber a piece of property. Thus, you don’t need to own your property free and clear in order to qualify for a property tax loan.

What You Need to Know Before Taking Out a Property Tax Loan

Property tax loans are relatively simple and straightforward, especially when compared to other lending products like mortgages.

Read more about the basics of how property tax loans work, and about who is eligible to take out a property tax loan.

But essentially, these useful financial products help property owners avoid losing their property to foreclosure by providing the cash necessary to pay their tax obligation up front and allowing the owner to repay those funds over time pursuant to a customized payment plan.

In this post, we’re going to set out some useful information to know about property tax loans to guide you in your search for the right lender.

Who issues property tax loans?

Property tax loans are issued by private lenders that are typically dedicated to making and servicing exclusively property tax loans. This singular focus allows property tax lenders to channel all their knowledge and resources into providing the best financial product for their specific type of client.

Nearly all lenders provide a convenient online portal for their clients to use to apply for their loan. The lender will review the application and a professional loan officer will call the potential borrower to gather the rest of the information necessary to determine the potential borrower’s eligibility for a loan.

The application and approval process typically takes just one to two days, with funds dispersing to pay the borrower’s delinquent property tax usually within a week.

Does anyone regulate the property tax lending industry?

Yes. Property tax lenders, like all commercial and residential lenders in Texas, are regulated by the State of Texas. The state agency responsible for providing oversight to our important industry is the Texas Office of Consumer Credit Commissioner.

The OCCC can be reached by phone at (512) 936-7200 or online at https://occc.texas.gov. The OCCC’s physical offices are located in the Finance Commission Building at 2601 N. Lamar Blvd. Austin, TX 78705.

Additionally, although not a regulatory body, the Texas Property Tax Lienholders Association is a professional organization comprised of the leading lenders in the property tax loan industry. The TPTLA provides valuable information about property tax loans and other matters relevant to the industry. You can find the TPTLA online at https://tptla.org.

Can my business take out a property tax loan?

Yes. This is an important point. Individual property owners are not the only ones able to benefit from property tax loans. Property tax loans, rather, are available to nearly any legal entity that is capable of owning property. Thus, if your business, for example, owns an office building and owes property taxes on that building that it cannot pay, the business can take out a property tax loan just like an individual could.

What interest rate will I pay?

The interest rate that a borrower will ultimately pay depends on a variety of factors and will differ for every borrower. Borrowers with exceptional credit may see interest rates as low as 9-10%, while other borrowers’ interest rate will be higher.

Still, considering the average interest rate on a consumer credit card ranges from 19% to 24%, taking out a property tax loan can save a significant amount of money in interest versus charging your property tax to a credit card.

Other factors that influence the interest rate that a borrower will pay include the property’s value, its location, and the borrower’s credit history.

What other fees are lenders allowed to charge?

Property tax lenders are, by law, allowed to charge only certain fees. Essentially, the only fees that property tax lenders are authorized to charge are fees necessary to allow the lender to cover its overhead expenses and realize a reasonable profit.

You can consult the Texas Financial Code to find a full list of authorized charges and fees that property tax lenders may charge their clients.

How long will I have to repay my property tax loan?

Property tax loans are designed to provide property owners with the flexibility they need to balance satisfying their tax obligations with all the other expenses and events that occur in everyday life. For this reason, property tax loan repayment terms vary from borrower to borrower according to each one’s unique financial circumstances.

Lenders frequently offer terms from 2 years all the way to 10 years, depending on the size of the loan and the borrower’s situation.

How can a property tax loan save me money?

The primary way that property tax loans save borrowers money is by avoiding the late fees and interest charged by the government after property taxes become delinquent.

And those fees can add up fast. Property taxes are due by January 31 of each year. If property taxes remain unpaid on February 1, the taxing authority charges a 6% penalty plus 1% interest for every additional month the taxes go unpaid. If the taxes are still unpaid by July 1, the penalty increases to 12%. This brings the total penalty 18% so far (12% penalty plus 6 months at 1% interest for each month). Also, if taxes remain delinquent for this long, the taxing authority may charge an additional 20% attorney’s fee on top of everything else. Thus, you could be on the hook for an extra 38% simply by paying your taxes 6 months late.

Property tax loans save property owners money by paying their tax precisely when it’s due, then charging the borrower a much lower interest rate, which is fixed for the life of the loan.

A full breakdown of the property tax fee schedule can be found on the Texas Comptroller’s website.

Can I pay off my property tax loan early?

Texas law prohibits property tax lenders from preventing or penalizing residential borrowers from paying off their property tax loans early. Thus, if you took out a property tax loan to pay the property tax on your residence, you are generally free to repay the loan as quickly as you can.

When should I not take out a property tax loan?

Property tax loans can and have helped thousands of Texans achieve financial security. Still, there are several notable situations in which a property owner should not take out a property tax loan.

If a property owner is over the age of 65, disabled, a veteran, or has homesteaded their property, they are generally eligible for property tax deferrals or exemptions that can prove more valuable than a property tax loan.

We encourage you to consult with your local taxing authority to determine whether you qualify for any property tax exemptions that may help lower your overall tax obligation.

What is a Property Tax Loan?

The State of Texas authorizes counties to assess and collect property tax on most real property and some types of personal property, such as automobiles and boats, located within the county. Property tax is generally due by January 31st of each year and based on the assessed value of the property from the prior year.

Property owners that cannot pay their property tax face a variety of potential consequences ranging from the taxing authority placing a lien on their property to the property being foreclosed and sold to satisfy the debt.

But falling behind on property taxes does not by any means guarantee losing your property. Rather, among several options, a well-structured property tax loan can help property owners satisfy their tax obligation as part of a broader strategy for achieving financial success.

How does a property tax loan work?

According to the Texas Office of Consumer Credit Commissioner, “A property tax lender is a person who engages in the business of making, transacting, or negotiating property tax loans.” In other words, property tax loans are loans that property owners take out to help them pay current or past-due property taxes when they cannot pay their property tax themselves.

A property tax loan is a financial product very similar to other types of personal loans. When a property owner lacks the cash to fully satisfy their tax obligation and either cannot liquify or desires to not liquify other assets in order to free up the necessary cash, a property tax lender will step in to loan the money necessary to pay the tax.

As with other types of secured credit, the lender will then place a lien on the property. But, in general, a lien is a third-party interest in a piece of property that vests the third party (called the “lienholder”) with certain rights with respect to the property. Most notably, a lien allows the lienholder to foreclose on the property, essentially forcing a sale to satisfy the debt.

Thus, boiled down, property tax loans work like this: The property owner borrows money from a lender; the owner then uses that money to pay his or her property tax; and the lender places a lien on the property. Once the owner repays the loan in full, the lien is removed and the parties’ business relationship concludes. In some instances, property owners must petition the local court to remove the lien, and in other cases the lender will take care of unencumbering the property.

What does a property tax loan look like?

Property tax loans come in a variety of styles and options. Because every borrower’s financial situation is different, any competent property tax lender should strive to create a financial product that best serves the individual borrower’s needs. Still, all property tax loans share a few common characteristics.

First, while many property tax lenders do not charge application fees or other up-front costs when applying for a loan, most lenders charge what is referred to in the industry as an “origination fee.” An origination fee is an additional fee that lenders collect to help them cover overhead expenses associated with generating, underwriting, and issuing the loan in the first place. But precisely because lenders charge origination fees to cover overhead expenses, not to make a profit, borrowers should approach lenders that charge high origination fees with some skepticism.

While in theory a lender could charge a flat origination fee, it is common practice for lenders to structure the origination fee in terms of a percentage of the total loan amount. Thus, larger loans are more expensive in this respect.

Second, your property tax loan will, of course, carry an interest rate. Interest is the premium that borrowers pay for the privilege of using borrowed money. And from the lender’s perspective, interest compensates the lender for both the time-value of money and the risk inherent in lending money.

Property tax loans are a type of secured credit, meaning the borrower puts up collateral to guarantee the loan in case he or she defaults on the payments. But for this reason, the interest rate on a property tax loan is typically much lower than the rate property owners would pay if they, for example, used a credit card to make their tax payment.

Interest rates vary from borrower to borrower based on a variety of factors. Notable factors that influence every borrower’s interest rate, however, include the property’s value, its location, and the borrower’s credit history. It also bears noting that below-average credit does not necessarily disqualify a borrower in the eyes of many lenders. A less-than-stellar credit history, therefore, should not discourage you from seeking out a property tax loan.

Third, as we mentioned briefly above, taking out a property tax loan will authorize the lender to place a lien on the property. Technically speaking, if a property owner already owes overdue taxes, the local taxing authority has likely already placed a lien on the property. In that case, the lien simply transfers from the taxing authority to the lender. But in cases where taxes are not yet overdue, the lender will place a lien on the property itself.

How long does it take to get a property tax loan?

In this day and age, applying for and receiving a property tax loan is simple and straightforward. Potential borrowers will almost categorically begin by applying for their loan online. A professional loan officer will then typically call the borrower on the phone to gather the rest of the information that the lender needs to determine whether the borrower is eligible and what terms it can offer.

Loans made to pay taxes on non-homesteaded property can sometimes close in as little as one day. The law requires a three-day waiting period between approval and closing for loans made to pay taxes on homesteaded properties. But in any event closing typically takes place about a week after approval, and in many cases sooner.

Where do I go to get a property tax loan?

Property owners have a variety of lending options at their disposal. Many lenders operate entirely online, while others maintain physical locations as well.

Here at PropertyTaxLoanPros.com, our lending professionals are eager help craft a plan that works for you and your unique situation. So, if you own property in Texas and are struggling to pay your property tax, we encourage you to reach out to us to see how we may be able to help. You can reach us by phone at 866-531-7678 or by email at info@propertytaxloanpros.com.