Buying a new build in Arizona? Plan for the first-year property tax jump

Arizona builds a lot of new homes, from Buckeye and Surprise to Queen Creek, San Tan Valley and Maricopa. If you’re buying one, there’s a surprise worth knowing about before you sign: your property taxes, and your mortgage payment, will probably go up after the first year.

Why it happens

Property taxes are based on the county’s assessed value. When your home is brand new, the county’s most recent assessment may still reflect the land, or a partially built home, rather than the finished house.

Your lender sets up your escrow account based on the current tax bill. That number is low. Once the county assesses the completed home, the tax bill rises, your escrow account comes up short, and your monthly payment increases to cover the new amount and the shortage.

How much does it change?

It depends on the home, the community and the county. In some new communities, special taxing districts add to the bill too. The important thing is to estimate taxes on the finished home, not the current bill, when you decide what you can afford.

How to plan for it

• Ask your lender to estimate taxes on the completed home. Pete does this by default for new builds.
• Look up the community’s tax districts. Your title company or the builder can tell you which ones apply.
• Set money aside. If your payment doesn’t include enough for taxes in year one, a small monthly cushion makes the adjustment painless.
• Read your escrow analysis. Your servicer will send one each year. Don’t ignore it.

Builder incentives and your lender

Builders often offer closing credits or rate buydowns if you use their preferred lender. Those can be great deals, but they aren’t always the best total cost, and you can choose your own lender. Get a Loan Estimate from both and compare them side by side, or use the Loan Estimate review tool.

Thinking about new construction? See new construction loans or book a call with Pete before you sign with the builder.