Buying your first home is a total piece of cake. There is very little legal and financial information you need to know and you can do it on your smart phone from an ad you saw below a picture of a sloth eating a flower. No, we’re fibbing – though it will be the only fibbing in this article.
Buying a home is one of the biggest purchases of your life and navigating the roiling sea of information you need to know to do it is paramount to not getting conned into buying a lemon. So, in the interest of informing you about things you’ll need to know to buy a house – let’s talk about property taxes.
What are Property Taxes?
Property taxes are, in a nutshell, what you pay to live in the city you live in. They pay for public utilities, public schools, fire department, police departments, roads, etc. Property taxes essentially are meant to elevate the quality of life for everyone in the city collectively. Think of it as living in a rural, green-lawned suburb vs. Mad Max dystopia. One has the rule of law, smooth roads, strong public schools, and clean water. The other has motorcycle gangs roaming the countryside terrorizing towns.
Taxes are pretty good when you think about it; they pay necessary items that a city needs to function and are going to factor into whether or not you can afford to / want to afford to live in certain areas.
If you’re buying a home in New Jersey, brace yourself. While there are many beautiful and affordable properties, you should budget accordingly since property taxes in the state are the highest in the country. The average cost of property taxes per year in New Jersey is roughly $8,000 per home.
On the lower end of the property tax spectrum, you have Walpack Township in Sussex county with a piddling $439 annual property tax as of 2014. Right behind them on the low end of the property tax spectrum is Camden City, with homeowners paying a cool $1,485 each year.
On the higher end of the Jersey property tax equation is Tavistock Borough in Camden county to the tune of $25,346 per home. Milburn Township in Essex county and Loch Arbour Village in Monmoth come in just behind Tavistock with homeowners paying $21,000 in property taxes each year.
Property taxes can vary wildly from city to city and county to county, however, making sure your budget can accommodate theses property taxes is key when you’re buying your home in NJ.
How much does my property affect the taxes I have to pay?
Property taxes use the general equation of the annual budget of the city/town/village you live in minus the sales tax revenue of said city. Then you divide that number by the state aid provided by the capital of that state, and that equals your property tax. Simple right?
It sounds complex, but really it isn’t. What is complex is how this can vary from locale to locale, which is where the real digging comes in to play. What you’ll learn is that your property has a base value before you put in any infinity pools and garages. That value of your property is then subtracted from as you put in a nice patio or that balustrade on the balcony so your local government can collect an increased amount of taxes based on the tax rate as the original property value. IE – If you make your property more valuable, you pay less.
The flip side of this coin is that when property values go down (your infinity pool floods the neighborhood and everyone leaves), you’ll need someone to pay the taxes for police, fire, roads, etc. and your property taxes go up. Additionally, the property values of comparable homes in the area are averaged to assess the value of your property. So ,once everyone trusts you won’t build another infinity pool and moves back into the neighborhood, those properties comparable to yours will help to inform the tax rate that is paid.
So what does this mean for a first time home buyer?
It just means you have to do your homework about where you want to live. There are a lot of factors at play – contacting a professional real estate agent familiar with New Jersey is the best bet – but going in armed with knowledge about property taxes in NJ isn’t going to hurt your situation. Thinking about the above information, you want to go in thinking about the assessment value of the property you’re thinking of buying, the appraised value of the land with improvements, and then the property taxes for the surrounding area. This will give you a rough idea of the counties and cities most suited for your situation.
First time home buyer with a young family? You’re probably more interested in public schools than the bar scene, so seeing what the local taxes (IE your property taxes) pay into the public school system will help you inform your decision about whether the tax rate on the property you have in mind is reasonable. There are an infinite amount of situations out there, and this is a lot of information to digest for a first time purchase. However buying a home in New Jersey can be easier than you think, provided you have the right people in your corner.
So who can help me navigate this storm?
There is a whole mountain of information out there for you to read, digest, and read again after you’ve forgotten the specifics, and then read again. Remember, this is a home you’re purchasing and it’s you that really has to know what is best for you – but using a real estate agent from a reputable company who will work with you to find the perfect place is an incredible resource.
Some other good places to discover preliminary information are NJ.com, which has a great tool to look up tax rates by county, the web pages of local governments who post data relevant to location specific tax information, and posts like this. You can also find various property tax calculators to help get a better idea of what the rate is of where you’re looking to move.