Owning a home is an exciting time of a person’s life.  You may have negotiated the sales price for your home. You may have negotiated the cost of repairs with your contractors or movers. You may even have negotiated the cost of your cable bill but the one thing you can’t negotiate is your property taxes. Cook County property tax bills are billed twice a year, February (due March) and July (due August).

If you’re on the hunt for a new home it’s crucial to understand what the proeprty tax bill is and how it will affect your monthly budget.  We get so many calls about how to reduce property tax because they can’t afford it anymore. Before you buy your house, please know that YOUR PROPERTY TAX BILL WILL GO UP! There are three factors that goes into calculating your bill. We have zero control over two of those factors and a very low chance of changing one of those factors through appeals but in general, these factors cause your bill to change every year and usually it will go up. Then every three years we go through  reassessement where the assessed value of your home gets reassessed. Unless there are major financial crisis, our taxes will go up and possibly even more during the three year reasssessement period.

This information isn’t to deter anyone from buying their dream home but you just need to be aware of what you’re getting into. If you are able to afford a $300k house and house A has a $6k annual tax bill and house B has a $10k annual tax bill, which one will you choose?  Why does that matter, I want the bigger house? I got approved for $300k mortgage so as long as I can afford the monthly payment I can get whatever I want. Yes, BUT there are so many things to consider. If you picked house B and the following year the taxes jumped to $12k, will you be able to afford $1000 a month on just the property tax? A $2k jump in property taxes is $167 per month but if you’re in escrow then you may be charged $250 per month so your bank has a cushion in their escrow account.

If you have a decrease in income, will you still be able to afford the monthly payments? Because if you don’t pay your propety tax bill, you will be charged monthly penalties and then it will ultimately go into a tax sale where your interest rate will significantly increase. Unfortunately there are no government programs to help pay off your property tax bill. There may be assistance with rent or mortgage payments but that probably won’t include your propety tax bill. Once again your property tax bill is not negotiable so just plan ahead and know before you buy.

What does escrow mean? When you escrow your property taxes, it means that your mortgage bank will hold a separate account to pay your property tax for you. It’s a service they provide as a condition for not putting at least 20% down on the sale’s price of your house. You also can opt to have an escrow account even if you do put down at least 20%.

Why is this important? When you have your property tax in escrow your bank collects an amount in addition to your mortgage to put aside to pay for your property tax bill when it comes out, twice a year. This is a service they provide. Albeit you don’t have a choice in the matter if you put less than 20% but because it’s a service, if they fail to pay the payment for you, it’s still your responsibility if you incur late fees. So make sure you still check to see if your property tax bill is paid before the due date.

Another reason having an escrow account is important is that banks want to have a cushion in their escrow account to make sure they have enough when the property tax bill increases. When they calculate the escrow account at the closing table, they will not know the final payment so even though they gave you an amount to pay per month, once that final tax bill comes out, your monthly payment may change.  This can also happen every year when the final bill comes out and they need to increase that “cushion” in your escrow account.

Did you know after you have sufficient equity in your house, you can opt out of having an escrow account? Why is this important? You no longer need to pay monthly to the bank to hold for you in order to pay your propety tax bill twice a year. You can have control of where that montly payment goes to and then pay it directly yourself when the bill comes out. However, if you are not good at budgeting and can’t come up with a full installment payment twice a year to pay for your proeprty tax, it is best to stay in escrow.

Another question we get all the time that confuses many people is “why am I paying last year’s property tax bill? I didn’t live there last year!”

Fun fact, during the Great Depression people refused to pay taxes. They honestly couldn’t afford it so Illinois delayed the payments one year but not the obligation to pay. This paying in arrears started in the 1930s and continues to this day.

This unique payment situation is thoroughly explained during closing but not many people pay attention since they are so excited to just get the keys to their new house. It should also have been explained in detail when buyers sign the offer contract because it’s part of the offer but again, even some realtors don’t fully understand this and defer it to the buyer’s attorney.

Let’s say you are closing on a house on April 30, 2021. The sellers owned that house from January to April 30th. You are now the owner of that house from April 30 to December of that year. The final property tax bill for that year comes out in July 2022. You, as the new homeowner, will receive that bill on July 2022. It will say 2021 property tax bill and you may have forgotten what the attorney said about property tax bill by then and think, ”I didn’t live here in 2021!”

If you look back on your closing statement, you will see that you already received credit from the sellers for having lived there until April 30th. You recieved credit from the sellers at closing for the days they lived in the property from their last payment until closing. So even if you didn’t live at the house the year the property tax bill was billed for, just remember you already got paid for the time you didn’t live in the house. 

Another reason why I think it’s critical for real estate agents to explain this to new buyers is that in most cases home are purchased from sellers with multiple exemptions. Some of these exemption discounts increase over the years and by the time you purchase the house, the property taxes might look so low and you don’t realize that the seller was getting exemption discounts that you DO NOT qualify for. If the tax bill is low due to exemptions you will only receive credit for the bill that included the discounts. This is important to know because once you move into the property, your new tax bill will not include the seller’s exemptions and will be way higher than what you got credit for at closing. Either one of two things will happen when you receive the tax bill after you move in. You get the bill in July 2022 and the sellers’ exemptions are still on the bill and you just pay that amount with their exemptions applied. OR you get a $12k bill with their exemptions dropped and now you have to pay $11k out of your pocket. No one explained to you or you didn’t pay attention that the tax bill is around $12k without the exemptions and you need to plan for a proepty tax bill of $1k a month and not $250 per month like you thought.  This has happened and many times, people are shocked to learn this but it shouldn’t have been a surprise. The property tax bill is public infomation and is availalbe on cookcountytreasurer.com. You can educate yourself by looking at the property tax bill for the past couple of years and look at the actual amount BEFORE the exemptions were discounted. Don’t get stuck with a house your can’t afford. If you can’t afford the property tax bill then  you can’t afford the property, it doesn’t matter what the house cost at that point.

Let me say it louder for the folks in the back, if you can’t afford the property tax bill (which most likely WILL GO UP every year), then you CAN NOT afford that house.

True story, a buyer called me to learn about the property taxes on a house that she was interested in. It was a huge house in Morton Grove. Over 4 bedrooms, fairly new constrution but it was in foreclosure. The price was very low for the size of the house. She said she could afford the mortgage on the house. It was about $250k. She said she had several children and needed a big house and this house was perfect except for the property tax. The property tax on such a big house based on the size, contruction, style, etc. was $15k.  The montly payment on just the property tax would be over $1250 and of course it will increase over the years. She asked if there would be any way to lower the property tax so she could afford it. I had to tell her there’s no possilbe way. Plus why would you want to buy a house that is at the max of what your can afford? As homeowners, there will always be unplanned costs of owning a house. Either equipement or fixture replacement or the cost of maintinence. Do not get yourself into a situtation that will only add stress.

So I explained how the only way to save on  your property tax bill was by filing exemptions. Exemptions are direct discounts based on qualifying factors like age or disablities. However there’s aanother indirect way to potentially lower your proeprty tax bill. I mentioned that there are three factors to go into calculating your property tax bill. The assessed value of the house, the State multiplier rate, and the local tax rate. Of these three factors, the second two, the state multiplier and local tax rate, are out of our control. The assessed value however, can be appealed. A

An appeal is an “ask.” IF you don’t ask for it,  you don’t get it. An appeal is what homeowners can file to lower the assessed value of the house, the first factor that goes into caluclating your property tax bill. We want our homes to be assessed fairly. My house should be assesed the same as my neighbors’ house based on type of construction, square footage, age, proximity, and style. In other words, my 1400 sq ft brick, bilevel, from 1960, in Skokie near Niles North High school should have the same assesed valued as my neighbor with the same type, size, age, proximity.

I get told every day that someone’s neighbor is paying way less in their property tax bill with the exact same house. How is this possible? Exemptions. Its a very rare day that someone asks me why someone else’s assessed value is so much lower. We can not compare property tax bills because your 85 year old veteran neighbor that lives in the exact same house as you pays so much less than you. If their assessed value is significantly less, then you have a great case for winning your appeal.