Proposition 13 was enacted in 1978 by voters to limit the amount of property-taxes the homeowner pays. Prop 13 protects your property taxes from increasing by more than 2 percent per year. It protects properties that rise in value.
Following are the biggest concerns mortgage borrowers have when it comes time to keeping property taxes low…
I want to buy my family home, but I cannot afford current market property taxes. How can I buy the house and keep my mortgage payment ultra-low?
Prop 13 protects change of ownership amongst family members e.g. spouses, domestic partners, parent to child and grandparents. Aunts, uncles and other relatives do not count and any property transferred amongst those people will cause a reassessment in the value to current purchase price.
I want to buy the house for my family for what they owe on it.
This doesn’t always work out that way, here’s why. Let’s say there’s a $300,000 mortgage on the property and your parents are agreeing to sell you their property for $300,000. There still needs to be an equity position and there’s also closing costs. Remember less equity results in a higher mortgage payment prompting the need for private mortgage insurance (PMI). Additionally, there is closing costs including title insurance, notary fee, title fees etc. In such a scenario if your folks don’t want to net any money by selling the property to you and they’re going to essentially sell you the property for what they owe on it you would have to pay the down payment of at least 3.5 percent and the closing costs yourself or the down payment amount and the closing costs would be added to the amount owed on the property and that’s what your purchase price would be for.
I can’t qualify at current property taxes. How do we make sure to use the lower taxes in the mortgage process?
Not all mortgage companies will recognize the change of property tax ownership. But not all property transfers amongst family are sold for substantially below the current market value and as such the property taxes are based on the purchase price.
So, for example let’s say your family is selling you an $800,000 house for $500,000. Sounds crazy, but it happens. The property taxes would be based on $833 per month ($10k per year) for qualifying purposes at 1.25 percent representing the property tax base. Then after the fact you would fill out a form with the Sonoma County Assessor stating that the property was a change of ownership amongst the immediate family members thereby carrying the family Prop 13 tax base to the new owner.
Does adding somebody or removing somebody from the title cause the house to be reassessed?
Not unless there is a complete change of ownership. However, there are property taxes that come up in the form of transfer taxes by adding and removing people from title to the property.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.