Are Property Taxes Included in Mortgage Payments in Texas?

Texas homebuyers should be aware of all the costs that come with homeownership, especially the cost of property taxes. Texas is known for its high property tax rates, which is why homeowners should properly budget and determine how they will pay for their property taxes at the end of each tax year. Will you pay through your mortgage? Or will you pay one lump sum on your own? To better answer these questions, read our blog to learn how property taxes could be included in your monthly mortgage payments to your lender and what that might entail.

Does My Mortgage Payment Include My Property Taxes?

Typically, when you get a mortgage, your lender will include your property taxes in your monthly bill. However, your mortgage and your property tax are still considered two separate payments. Lenders will estimate how much your property tax bill will cost you at the end of the year and then divide that amount by 12. This estimation will determine how much you pay monthly for your property taxes in addition to your mortgage payments. 

The amount you pay each month does not go directly to the county. Instead, your lender will place the money you are paying towards your property taxes into an escrow account. When your money is due to the county at the end of each tax year, your lender will pay your taxes on your behalf, using the funds that were placed in the account. Read our blog to learn more about how escrow accounts work.

What if the Tax Estimation is Incorrect?

While the lender is responsible for estimating the amount of money that you’ll pay in property taxes and breaking down the amount into monthly payments, this estimation may not always be accurate. This could occur from a property tax increase, causing you to have an escrow shortage. This is when the funds in your escrow account do not meet the minimum requirement to pay your property taxes. If this happens, your lender will end up paying the difference in your property tax bill. You will then have the option to either pay your lender back by paying the shortage in full or by paying the amount back over the next 12 months by having it added to your monthly payments.

In contrast to an escrow shortage, you could also have an escrow surplus. This means your escrow account could have additional funds if your taxes turn out to be lower than expected. If the surplus falls below a certain amount, such as 50 dollars, the lender will keep the money in your account. Otherwise, they will send you the remaining amount as a check.

Is it a Requirement to Pay My Texas Property Taxes with My Mortgage?

It can be a requirement to pay your Texas property taxes with your mortgage, depending on the type of mortgage you have. For instance, if you have a government-backed loan such as an FHA, VA, or USDA loan, you are required to have an escrow account. Or if you make less than a 20% down payment on a conventional loan, you are also required to have an account. Why? Lenders want to make sure your bill gets paid on time to protect themselves and the money they are lending to the borrower. If a property is foreclosed upon due to unpaid property taxes, the lender may have to pay the leftover property tax amount or risk losing the amount they are owed through the foreclosure. By having an escrow account, the borrower and lender will avoid any liens from being placed on the property and from being forced into foreclosure.

What Happens if I Pay Off My Mortgage?

As exciting as it may be to pay off your mortgage, you are now responsible for paying your property taxes on your own instead of using an escrow account and having your lender do it for you. Now, you will be responsible for paying the taxing entity directly. For instructions on how to pay your property taxes on your own, visit your local taxing authority’s website for more information.

What If I Don’t Have an Escrow Account and Can’t Pay My Property Taxes?

If you do not have an escrow account and are responsible for paying your own property taxes but are falling behind and considered delinquent, Johnson & Starr can help. We understand the difficulties of being hit with a property tax bill in one lump sum, which is why we provide fair, flexible, and easy-to-understand loans that relieve the stress of burdensome past-due property tax bills. We pay off your taxes in full then you can pay us back on a schedule that works for you. So, do not hesitate to get help. Fill out our quick and easy application here or contact us today at 888-508-3894 to speak to one of our certified loan officers.