Why Property Taxes Matter More Than Most Homebuyers Think

For many first-time homebuyers, the focus of their finances is often aimed at the mortgage payment, and for good reason. It’s the largest single monthly expense for most households. But there’s another cost sitting quietly in the background that can have just as much impact on a budget: Property taxes.

Unlike a fixed-rate mortgage, property taxes can change from year to year, depending on where you live and how local governments assess home values. That can catch buyers off guard if they only budget for principal and interest.

“Property taxes are one of the most overlooked parts of homeownership planning,” said Michael Frerking, director of residential lending for OMB Bank. “A buyer may qualify for a certain home price, but the tax bill attached to that property can significantly affect the real monthly payment.”

In most cases, homeowners pay both property taxes and homeowners insurance through an escrow account managed by their mortgage lender. A portion of those costs is added to the monthly mortgage payment, then paid by the lender when the bills come due. That setup helps simplify payments, but it can also create confusion when taxes increase.

“People are sometimes surprised when their monthly payment changes after the first year,” Frerking said. “Often, it’s because the property was reassessed, taxes increased or insurance costs changed after the sale.”

That’s especially common when a home changes ownership or when a fast-moving housing market pushes up property values.

The amount homeowners pay varies widely by location. A home with a lower sale price in one county may actually cost more each month than a higher-priced home elsewhere because of tax rates. Financial experts, including the Consumer Financial Protection Bureau, encourage buyers to research local tax histories before making an offer. Looking at past tax increases can help paint a more realistic picture of long-term affordability.

Frerking said buyers should also ask questions early in the process.

“Don’t just ask what the payment is today,” he said. “Ask whether taxes are expected to change and how that could affect your budget over time.”

Property taxes fund local services like schools, roads, emergency services and public libraries. While most homeowners understand taxes are part of the package, few enjoy opening that bill. Still, taxes can offer clues about a community. Areas with higher property taxes may also have stronger school systems, newer infrastructure or more local amenities. The key is balancing those benefits with what fits comfortably within a household budget. Housing experts, including Freddie Mac, encourage buyers to think beyond the first year of ownership. Maintenance costs, insurance premiums and property taxes all have the potential to rise over time.

“Homeownership should still leave room for the rest of your life,” Frerking said. “You don’t want every dollar tied up in housing expenses.”

For buyers trying to make sense of the numbers, the lesson is simple: The sticker price only tells part of the story. A house might check every box, from the updated kitchen to the quiet neighborhood, but the monthly costs matter just as much as the curb appeal. Buyers who take time to understand property taxes before closing are often in a better position to enjoy the home they worked so hard to buy.

OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.