Understanding TX Property Taxes and Payoff on Closing Day

Closing day is an exciting moment for homebuyers in Texas, as it marks the official transfer of ownership from the seller to the buyer. However, amidst the excitement, it's essential to understand how property taxes and payoff are calculated on closing day to avoid any surprises.

Property Taxes on Closing Day

Property taxes in Texas are an ad valorem tax, meaning they are based on the property's assessed value. To calculate your property taxes on closing day, follow these steps:

1. Determine the tax rate: The tax rate varies depending on your county and local taxing authorities. In Texas, tax rates can differ significantly from one area to another, so it's crucial to check with your local tax assessor's office for the most accurate and up-to-date information.

2. Obtain the assessed value: The county tax assessor determines the property's assessed value, which is an estimate of its market value. This value is used to calculate the property taxes due for the year.

3. Prorate the taxes: Property taxes in Texas are typically paid in arrears. This means that the seller has already paid taxes for the portion of the year they owned the property. On closing day, the taxes are prorated so that each party pays their fair share for the time they will own the property during the current tax year.

4. Closing date calculation: Calculate the number of days the seller owned the property during the tax year. The buyer will be responsible for property taxes from the closing date until the end of the tax year.

5. Closing disclosure statement: The title company or closing agent prepares a closing disclosure statement, which includes the prorated property taxes due from both the buyer and the seller. This statement will be provided to both parties before the closing day.

Loan Payoff on Closing Day

If you're financing your home purchase with a mortgage loan, you'll need to settle the outstanding loan balance on closing day. Here's what you need to know:

1. Obtain a payoff statement: A payoff statement is a document provided by the lender that indicates the exact amount required to satisfy the outstanding loan balance. It includes the principal balance, interest accrued up to the closing date, and any additional fees.

2. Review the payoff statement: Before closing day, carefully review the payoff statement to ensure its accuracy. Any discrepancies or questions should be addressed with your lender.

3. Wire transfer or cashier's check: On closing day, the buyer (or the buyer's attorney or closing agent) will bring the necessary funds to cover the loan payoff amount. This can be done through a wire transfer or a cashier's check made out to the lender.

Conclusion

Understanding property taxes and payoff on closing day is crucial for Texas homebuyers to avoid surprises and ensure a smooth real estate transaction. By prorating property taxes and settling the loan payoff correctly, you can confidently step into your new home and embark on an exciting new chapter in your life. Remember, a knowledgeable closing agent can help guide you through the process, ensuring a successful closing day experience.