You may be wondering about property taxes in Alabama along with what homestead means in the real estate industry. Here we discuss the basics of Alabama property tax and how it effects the process of buying a home in Huntsville, AL. We also discuss what homestead means, the advantages of homesteading real estate, and how much you can save with homestead exemption.
Alabama Property Taxes Explained
Know The Basics About Property Taxes.
If you own a house in Alabama, you will likely pay property tax every year. This means that you will receive a bill at the end of each year. It also means that you will have to pay property taxes even if you rent out your home. Property taxes are prorated at closing; not paying attention to the homestead laws can cost you thousands of dollars a year in property taxes.
The tax year runs October 1st through September 30th instead of being based on the calendar year. After the taxes accumulate, the government charges the taxes and collects those taxes which is called ‘paying in arrears'. For example, if you close on June 15th the seller will actually owe taxes from the previous October 1st through June 15th. The attorney will collect the seller's prorated portion of the taxes and give that to the buyer at closing so that the buyer can pay the full year taxes at the end of the tax year.
If you're financing a home, those taxes will go into your escrow account and the bank will pay those taxes at the end of the year. If you're paying cash or you're using a commercial loan, then those taxes will be prorated in your pocket; you'll need to save those and have them ready for the end of the tax year.
Find Out Whether You Can Afford A Home Or Not.
There are two ways to determine whether you can afford a home. One way is to use a mortgage calculator. Another way is to calculate how much money you would need to make after paying off your current debts.
Understand The Process For Buying A Home.
If you decide to buy a house, there are several steps involved. First, you will need to find a lender who will finance the purchase. Then, you will need to apply for a loan. Once approved, you will need to choose a real estate agent to help you find a suitable home. Finally, you will need to close on the sale.
What Is Homestead?
If you live in an area where there is no state income tax, then you might qualify for a homestead exemption. This means that you will not pay property taxes on your home. However, if you do not meet the requirements for a homestead exemption, you will still need to pay property taxes.
How Much Can You Save By Taking Advantage Of This Benefit?
A homestead exemption can save you money each year. It is based on the value of your home, so the higher your home is worth, the bigger the savings. There are also other benefits to having a homestead exemption. For instance, you won’t have to pay property taxes on any improvements you make to your house. Also, if you sell your home, you will receive a portion of the sale price as a refund.
When you close on your home, you're going to close with an attorney's office. That attorney is going to take the deed and record it with the courthouse. Once that deed comes back from the courthouse, the attorney is going to mail you that deed which is typically several weeks after closing. You don't want to forget to take that physical deed along with your driver's license down to the local courthouse or a satellite office to claim your homestead exemption. If you don't, when the next tax year rolls around your taxes will be double for that tax year.
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