Overview
Property taxes are one of the most overlooked factors in home affordability. The same $400,000 home in New Jersey (2.5% property tax rate) costs $833/month in taxes. The same home in Alabama (0.4% rate) costs $133/month in taxes -- a $700/month difference. This dramatically affects both qualification and affordability.
Property tax rates and monthly cost by state on $350,000 home
| State | Avg Property Tax Rate | Annual Tax on $350K Home | Monthly Tax Payment |
|---|---|---|---|
| New Jersey | 2.49% | $8,715 | $726/month |
| Illinois | 2.27% | $7,945 | $662/month |
| New Hampshire | 2.09% | $7,315 | $610/month |
| Texas | 1.60% | $5,600 | $467/month |
| California | 0.75% | $2,625 | $219/month |
| Colorado | 0.55% | $1,925 | $160/month |
| Alabama | 0.41% | $1,435 | $120/month |
| Hawaii | 0.32% | $1,120 | $93/month |
If you move from Texas (1.6% tax rate) to New Jersey (2.5% tax rate), the extra $280/month in property taxes on a $350,000 home reduces your mortgage buying power by approximately $37,000 at 7% rates -- just from property taxes alone. State tax rates are a major input when comparing housing costs across markets.
Key Points
- Property taxes are included in the PITI calculation that lenders use for front-end DTI
- High property tax states significantly reduce how much home you can afford within standard guidelines
- Annual property taxes typically range from 0.3% (Hawaii) to 2.5%+ (New Jersey, Illinois)
- Property taxes can increase annually -- budget for 2-3% annual growth in tax bills
- Some states have homestead exemptions that reduce property taxes for primary residence owners
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