When are Taxes Due in Arizona? And When are they Paid?
Property taxes in Arizona are due twice a year and paid in arrears, which means they are paid after the time they’re actually due. Taxes for January – June are due October 1st but not late until November 1st. Taxes for July through December are due on March 1st and not delinquent until May 1st.
How do Tax Pro-Rations Help to Lower my Closing Costs?
Below are two scenarios to show how the title company will properly assign taxes at closing for a property.
Example 1: Closing in January
If a buyer is closing on January 15th, 2019, the seller would have already paid taxes for the 1st half of 2018. However, the taxes for the 2nd half of 2018 aren’t due until March (and most mortgage companies/sellers don’t pay until May anyways). So, the buyer is moving into a property and will have to pay taxes a few months after closing for time that they didn’t own the property. Therefore, the title company will have the seller give a prorated tax credit from 7/1/2018 through 1/15/19 (closing) to the seller so they have enough to pay taxes. In essence, the seller is required to give the buyer 6.5 months’ worth of taxes to help the buyer pay future taxes. This is a credit given at closing to help with costs.
Example 2: Closing in October
If a buyer is closing on October 15th 2018, the seller would have already paid taxes for all of 2017 and probably not any of 2018 yet (since it’s not late until November 1st). In this case, since the taxes are already due, the title company will force the seller to pay taxes for the 1st half of 2018 at closing directly to the county. The title company will also have the seller give the buyer a credit for taxes from 7/1/2018 through 10/15/2019. Again, in essence, the seller is paying their taxes that are already due through closing and then giving 2.5 months of taxes in the form of a credit towards the buyers costs (since the buyer or their mortgage company will have to pay taxes the next spring).
Are my Taxes Included in my Mortgage Payment?
In some cases, borrowers are required to ‘escrow’ their taxes and insurance meaning that they don’t have a choice in paying their own taxes and insurance – it has to go through the lender. However, with most loans, it’s up to the borrower whether they’d like to include their taxes/insurance in their monthly payments or pay the big lump sums 1-2 times per year. With this being said, most borrowers out there do have their taxes and insurance including in their monthly payment.
Is it Better to Escrow my Taxes and Insurance?
There are pros and cons to each option. Most people prefer making one even payment over 12 months instead of 12 mortgage payments and then having a large annual insurance bill and two larger tax bills twice a year – escrowing can make budgeting easier. On the contrary, some borrowers that don’t mind budgeting like paying their own taxes and insurance because it means that the banks don’t have any of their funds tied up. Depending on your taxes, insurance, and time of the year, your escrow balance might be anywhere from $200 to $4000 (that’s your money being saved for taxes/insurance).
Contact me today if you have more questions!