Residential Property Tax Loans

Residential property tax loans are loans issued to help a property owner pay the property tax assessed on residential property-that is, property the owner uses either as his or her primary or secondary residence or rental property that he or she rents out to other people for them to use as their residence. In other words, residential property is property that people live on.

The State of Texas authorizes all counties to assess property tax on the value of residential property. Property owners typically receive their tax bills in the mail around November of each year. The bill will show the property’s assessed value and accordingly the amount of tax that is owed on it.

Property taxes are due upon receipt of the bill, but there is a built-in grace period that gives property owners until January 31 of the following year to pay their property tax in full without incurring any late fees or penalties. Thus, property owners generally have at least two months to come up with the funds necessary to pay their property tax bill before needing to worry about late fees and penalties.

Property taxes in Texas

Taxes, of course, are all governments’ primary source of revenue. Governments need money to operate just like businesses and individuals. Thus, governments need a source of income to pay for overhead operating expenses like personnel salaries, rent, maintenance and construction, and employee benefits plans and for public services like public schools, road construction, law enforcement, other first responders like firefighters and EMS personnel, and public transportation.

At the federal level and in most states, the income tax is the government’s primary source of income. But Texas, as you likely know, has no state income tax. Still, our state and local governments needs money in order to fund their operations. For this reason, the property tax is of special interest to Texas residents and Texas property owners in particular.

Texas property tax rates

Texans pays some of the highest property tax rates in the United States. Texas’s high property tax rates, however, are offset by our lack of state and local income tax, leading to Texans paying a lower overall percentage of their income in state taxes as compared to some other states.

Property taxes are assessed at the county level. Because each county is authorized to set its own property tax rate, it is impossible to provide a single statewide property tax rate. Some counties, typically the larger, more metropolitan counties, levy higher property taxes than smaller, rural counties.

Still, data are available to provide an idea of the average property tax rate that Texans pay. While the following figures are very general, they nevertheless provide valuable insight into the overall state tax situation in Texas.

Total state and local tax burden in Texas

Although Texas charges no state or local income tax, Texans still end up carrying a total tax obligation that is relatively close to the national average thanks to Texas’s high property taxes and its state and local sales tax.

We’ll start with property tax.

Property taxes are assessed as a percentage of a property’s value. Texas law defines a property’s assessed value as its market value on January 1 of the current tax year. This means that a property owner’s 2020 property tax will be calculated based on the property’s market value on January 1, 2020. This also means that property taxes can and likely will fluctuate slightly from year to year. However, because real property typically appreciates over time, property tax will, in general, increase over time as well.

The median home value in Texas is about $126,000. And the average residential property tax is $2,275 per year. This yields an average statewide property tax rate of about 1.80%.

Next, the average annual income in Texas is about $63,000. Dividing $2,275 by $63,000 yields a total property tax burden of 3.61%.

The state of Texas charges a statewide sales tax of 6.25% on retail sales and rentals of goods as well as taxable services. The state also authorizes local taxing jurisdictions to assess an extra 2% sales tax, bringing the total sales tax in some Texas counties to 8.25%. This is toward the high end of the spectrum, but it is still significantly less than the sales tax charged by some jurisdictions in other states that can top 10% or more of the total purchase price of a good or service.

Thus, adding the average property tax rate to the state and local sales tax rate yields a total state-local tax obligation of 11.86% in an area that charges a local sales tax and 9.86% in areas that do not. Surprisingly, this places Texas near the higher end of the spectrum when it comes to residents’ total state and local tax obligation, but it is still lower than the total state tax obligation of predictable states like New York, Connecticut, and New Jersey, which top out the list with rates around 12.5%.

(Sources: Tax-Rates.org and Comptroller.Texas.gov)

Fees and penalties for paying property taxes late

All this is to say that there is no escaping the tax collector. Regardless of where you live, in Texas or elsewhere, some of your income will go to paying taxes. It’s a fact of life, and it’s unavoidable. All we can do is make the most of it.

Still, there are certain ways to make sure that you don’t pay any more than you legally owe, and the first is paying your taxes on time or as close to on time as possible. Letting your property taxes become overdue by even just a few months can dramatically increase your total tax bill to a point where it can quickly become unmanageable.

Start with the base late fee. On February 1 of the year after the subject tax year, the law authorizes taxing authorities to impose a 6% late fee and a 1% interest charge. The law also authorizes taxing authorities to add an extra 1% interest charge each additional month the property tax remains unpaid. This brings the total late fee up to 11% if the tax remains unpaid on June 30.

On July 1, however, is where the late fees and penalties start to get very serious. Not only does the base late fee double from 6% to 12% at this time, the law also authorizes taxing authorities to charge a 20% attorney’s fee on top of everything else in case they need to initiate legal action to recover the unpaid tax. Thus, at the end of July following the subject tax year, property owners who owe delinquent property taxes are liable for an extra 38% on top of the taxes they already owe.

How a residential property tax loan can help

As you can see, penalties and late fees can make an already-hefty property tax bill nearly unmanageable. This is where a residential property tax loan can save property owners a significant amount of money. By paying the tax immediately when it is due or shortly after it becomes overdue, property owners avoid the substantial late fees and penalties that add up quickly when property tax remains unpaid for too long.

Instead of facing an increasing interest rate each additional month their property tax remains unpaid and a ballooning fee at the six month mark, residential property tax borrowers enjoy a low interest rate that remains fixed for the life of the loan, allowing borrowers to always know exactly what their monthly payment is and to plan accordingly.

Some local taxing authorities offer payment plans to property owners who are subject to their jurisdiction. But no government’s payment plan can match the personalization and flexibility offered by a residential property tax loan.

Timing

It is always best to pay property taxes as soon as possible after they become due in order to avoid the late fees and penalties described above. Thus, if you own residential property and know you will not be able to pay the tax on it for a given year, it would be a good idea to look into a residential property tax loan sooner rather than later. Meeting with lenders and discussing your options before your property tax becomes due will save both time and money once the taxes are due by allowing you to pay them as quickly as possible, thereby avoiding unnecessary fees and penalties.

That said, there are factors that determine when a property owner may actually take out a residential property tax loan, the main factor being whether the residential property has a mortgage on it or whether the owner owns it outright.

If the property is mortgaged, whether to a bank or another mortgage lender, the owner must wait until his or her property tax is overdue before taking out a residential property tax loan. But if the owner owns the property free and clear of any other encumbrance, then he or she may take out a property tax loan before the tax becomes overdue.

Consequences

Property tax loans have helped thousands of Texans satisfy their tax obligations in ways that work for them and their unique situation. But as with any loan, lenders require some form of assurance that the borrower will repay the loan.

Property tax loans, accordingly, are secured by a lien on the subject property. This lien gives the lender the right to foreclose on the subject property and sell it to recovery the debt if the borrower is unable to repay his or her property tax loan.

Foreclosure, however, is very rare, and we here at PropertyTaxLoanPros.com view foreclosure as a failure in the business relationship we seek to develop with our clients. We view our clients’ success as our success and, likewise our clients’ failure as our failure. For this reason, we strive to work with our clients to develop personalized repayment plans that put our clients in a position to succeed.