If you are a first-time homeowner, then you may be unsure about certain aspects of the process. You may have questions like “How much is a home loan?” or “Can I save money by negotiating directly with the homeowner?”
Although it may not be a top priority, you may wonder if your property taxes are included in your monthly mortgage payments.
The most likely answer is “yes,” but you should inquire with your lender to make sure. From our real estate attorneys at Diamond Real Estate, here are the details on real estate taxes and how they work with your mortgage.
Paying Property Taxes in Illinois
For many first-time homeowners, paying property taxes is an entirely new experience.
Property taxes are collected by local governments, most typically counties, to pay for a variety of services. The majority of revenue from property taxes are allocated to local school districts.
Property taxes are based on the assessed value of real property which is land and structures found upon it, including homes, buildings and crops. In most Illinois counties, the required assessment level of any real property is 33.333% of fair market value (except farmland and farm buildings).
In most Illinois counties, your property taxes are due in two installments, on June 1 and September 1. Some counties, like Cook County, require 55 percent of the previous year’s total property tax amount in the first payment, with the remainder (of the total property tax for the current year) due in the second payment.
If you do not pay your property taxes, then a lien may be placed on the property.
A lien is a legal right to take possession of someone else’s property until a debt is paid. If the county places a lien on your property, it has the right to sell that property to recover your unpaid taxes. You may redeem your property (if residential with six or less units) within two and a half years if you pay the overdue taxes, penalties and interest.
Why Does My Lender Require Monthly Tax Payments?
Private mortgage lenders are not obligated to include property taxes in their monthly payments, but most do so to maintain uniformity with major industry leaders like the Federal Housing Authority.
The most important reason that lenders collect property tax each month is to prevent foreclosure on the property if the owner fails to pay property taxes. If the property is foreclosed upon, then the lender—rather than the homeowner—must pay off the lien before reselling.
If your mortgage lender collects property taxes along with your mortgage payments, it deposits the tax funds into an escrow account. Your monthly property tax payment is based on your estimated annual tax amount divided by twelve.
If this estimate is too high, then the excess is returned to you; conversely, if you owe more, your lender may require a payment to cover the deficit, or raise future monthly payments.
In some circumstances, you may be able to pay off your property taxes independently of your lender. Normally, lenders will only permit this if the loan-to-value ratio is low or, in other words, your financial risk aspect is low.
Trust Diamond Real Estate Law with Your Property Issues
Built on a bedrock of putting client’s needs first, simple and up-to-the-minute communication, and brilliant real estate insights, Diamond Real Estate Law is a trusted real estate law firm in the McHenry community. Contact Diamond Real Estate Law today to schedule a free consultation about your real estate issue.
