When you buy a home, you enter into a new world with its own language. The language of real estate can be scary, but not if you do some research.
One of the things you will notice is a number of fees and taxes you have probably never heard of before. One of these is the mortgage recording tax. Here’s what you need to know about this little-known tax.
Who Has to Pay a Mortgage Tax?
The mortgage recording tax is used to document the loan transaction. This is separate from mortgage interest and other annual property taxes. It is paid when you take out a mortgage, but it is a state-imposed tax. Not everyone has to pay it.
There are currently eight states that charge mortgage recording tax. If you buy a home in Alabama, Florida, Kansas, Minnesota, New York, Oklahoma, Tennessee, Virginia or Washington, D.C., you will have to pay this tax.
Rates vary by state but some charge as little as 12 cents per $100 of the mortgage principal (the amount you are borrowing from the lender). Check with your state to see what you will owe in mortgage tax before you purchase a home. In some instances, the tax may vary by county or city within a state as well.
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How to Save on Mortgage Tax
If you are looking to refinance, you may be able to save on the mortgage tax. A mortgage assignment will transfer the original mortgage tax to the new lender. Not all lending institutions will do this, but it’s worth investigating to determine if it could save you money.
Regardless, you will want to pay the mortgage tax promptly. If you don’t, states will charge monthly penalty fees and can even place a floating rate of interest on any unpaid document.
Before you buy a home, it's important to make sure you can afford the mortgage's monthly payments (you can calculate that here), closing costs, fees and taxes. It's also important to make sure your credit is in good shape so you get the best interest rate you can qualify for.
If you want to see where your credit currently stands, the free Credit Report Card will show you two of your credit scores for free and outline your credit profile's strengths and weaknesses.
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