Michigan homebuyers often use the seller’s current property tax bill when estimating the cost of a home. That number is easy to find and appears to be specific to the property, so it can feel like a dependable budgeting figure.
The problem is that the seller’s tax bill may not reflect what the buyer will pay after ownership transfers.
Michigan limits how quickly a property’s taxable value can increase while the same owner holds it. Following a transfer of ownership, the taxable value may be uncapped and reset for the following year based on the property’s state equalized value. If the seller owned the home for many years, the difference between the capped taxable value and the new value can be significant.
This change can affect more than the annual tax bill. When property taxes are collected through a mortgage escrow account, a higher bill can increase the monthly mortgage payment. Buyers who do not plan for the adjustment may face an unwelcome surprise after closing.
This guide explains Michigan property tax uncapping, assessed value, state equalized value, taxable value, the Principal Residence Exemption, and how buyers can build a more realistic homeownership budget.
Key Takeaways
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The seller’s current property tax bill may not predict the buyer’s future bill.
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Michigan taxable value is generally capped during continuous ownership, subject to state law.
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A transfer of ownership can cause taxable value to uncap in the following calendar year unless an exemption applies.
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Purchase price does not automatically become the property’s assessed value or taxable value.
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The Principal Residence Exemption can reduce certain school operating taxes for a qualifying owner-occupied home.
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A tax increase can create an escrow shortage and raise the monthly mortgage payment.
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Buyers should obtain a local tax estimate before committing to a payment or purchase price.
The Four Numbers Michigan Buyers Should Understand
Michigan property-tax discussions often involve several values. They are related, but they are not interchangeable.
True cash value
True cash value is generally the property’s usual selling price or market value as determined under Michigan law. The local assessor estimates this value using the mass-appraisal process and the information available to the assessing jurisdiction.
The assessor does not simply copy the purchase price. Michigan’s Property Transfer Affidavit instructions state that the price paid in a transfer is not automatically presumed to be the property’s true cash value. The assessor must use the same valuation method applied to other property of the same classification in that jurisdiction.
Assessed value
Assessed value is generally set at 50 percent of true cash value. If a home’s estimated true cash value is $400,000, an assessed value might be approximately $200,000. This is a simplified example, not a property-specific prediction.
State equalized value
State equalized value, commonly called SEV, is the assessed value after county and state equalization. Equalization is designed to help keep assessments at the required percentage of true cash value across jurisdictions.
Taxable value
Taxable value is the figure to which applicable millage rates are applied when calculating property taxes. During the same ownership, taxable value may be lower than SEV because annual taxable-value growth is limited by Michigan’s constitutional and statutory rules, excluding additions and other permitted adjustments.
The gap between SEV and taxable value becomes especially important when a property transfers.
What Does Property Tax Uncapping Mean?
When a qualifying transfer of ownership occurs, Michigan law generally provides for the property’s taxable value to be uncapped in the calendar year following the transfer. The new taxable value is generally set at the property’s SEV for that year, subject to applicable law and any transfer exemption.
After the uncapping occurs, the annual taxable-value cap generally applies again until the next transfer of ownership.
Consider a simplified example:
| Item | Before Sale | After Uncapping Example |
|---|---|---|
| State Equalized Value | $200,000 | $215,000 |
| Seller’s Taxable Value | $130,000 | Not applicable |
| Buyer’s New Taxable Value | Not applicable | $215,000 |
In this illustration, the prior owner’s taxable value had remained below SEV because it was capped during ownership. After the sale, the buyer’s taxable value could reset to the following year’s SEV. The actual result depends on the assessor, transfer date, classification, exemptions, additions, millage rates, and current law.
Uncapping does not necessarily happen on the closing date. This timing is one reason the first tax bill or early escrow analysis may still reflect old information.
Why the Seller’s Property Taxes May Be Lower
A long-term owner may have a taxable value that is substantially below current SEV. This does not mean the seller received a special discount or that the buyer is being charged a higher rate. It may simply reflect the cumulative effect of the taxable-value cap during the seller’s period of ownership.
The seller may also have exemptions that do not automatically apply to the buyer, such as:
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A Principal Residence Exemption
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A qualified agricultural exemption
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A disabled-veteran exemption
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Other property-specific or owner-specific treatment
Even when the buyer expects to qualify for an exemption, the correct form may need to be filed. The buyer should not assume every exemption shown on the seller’s bill will continue unchanged.
Property taxes may also differ because local millage rates, special assessments, school district boundaries, and taxing jurisdictions vary between properties.
Purchase Price Does Not Directly Set the Tax Bill
Buyers frequently hear that Michigan will tax the home based on the purchase price. That statement is too simple.
The sale is relevant market information, but the Michigan Department of Treasury’s Property Transfer Affidavit instructions explain that purchase price is not the presumptive true cash value. The local assessor values transferred property using the same approach used for comparable property in the jurisdiction.
A rough estimate that divides the purchase price by two and applies local millage rates may provide an initial planning number. It is not an official assessment and may be wrong because:
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The assessor’s market value may differ from the sale price
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The applicable millages may differ from a website estimate
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The property may qualify for a Principal Residence Exemption
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Special assessments may apply
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The timing of the transfer can affect which bills reflect the change
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A portion of the transaction may involve personal property or unusual conditions
For the best available estimate, contact the city or township assessor and treasurer for the specific parcel.
How Millage Rates Affect the Calculation
Michigan property taxes are calculated by applying millage rates to taxable value. One mill generally equals one dollar of tax for each $1,000 of taxable value.
A simplified formula is:
Taxable Value ÷ 1,000 × Total Applicable Mills = Estimated Property Tax
For example, if taxable value is $200,000 and the applicable rate is 35 mills:
$200,000 ÷ 1,000 × 35 = $7,000
This example excludes fees, special assessments, proration, exemptions, and other adjustments. It is included only to show the basic relationship between taxable value and mills.
Michigan tax bills can include millages for schools, cities or townships, counties, community colleges, libraries, public safety, parks, and other approved purposes. The applicable total depends on the property’s location and exemption status.
What Is the Principal Residence Exemption?
The Michigan Principal Residence Exemption, commonly called PRE, may exempt a qualifying principal residence from up to 18 mills of local school district operating tax. It does not eliminate all property taxes.
To qualify, an owner generally must own and occupy the property as a principal residence and meet Michigan requirements. A vacation home, rental property, or second home usually does not qualify merely because the owner uses it occasionally.
The buyer typically files an affidavit with the local assessor to claim the exemption. Filing deadlines and effective dates matter. Buyers should use current forms and confirm the process with the assessor rather than relying on the seller’s exemption.
Important points include:
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The exemption is tied to the qualifying owner and use
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It generally reduces school operating millage, not every millage
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The percentage may be less than 100 percent in certain ownership or use situations
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A homeowner may need to rescind a prior PRE after moving
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Incorrect claims can lead to denial, additional tax, interest, or penalties
The Michigan Department of Treasury maintains current PRE guidance and forms. Buyers with trusts, multiple homes, mixed use, marital changes, military service, or another unusual situation should request property-specific advice.
The Property Transfer Affidavit
Michigan’s Property Transfer Affidavit is an important post-closing document. The current state form states that it must generally be filed by the new owner with the assessor for the city or township where the property is located within 45 days of the transfer.
The affidavit provides information such as:
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Property address and parcel number
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Transfer date
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Buyer and seller names
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Purchase price
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Type of transfer
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Certain financing information
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A claimed exemption from uncapping, when applicable
Filing the affidavit does not create the tax. It notifies the assessing office of the transfer and supplies information required by Michigan law. Failure to file can result in penalties and the collection of additional taxes, interest, or other amounts allowed by law.
Some transfers are exempt from uncapping, including certain transfers between family members or into qualifying trusts, but the rules are specific. Buyers should not claim an exemption without confirming that the transfer satisfies the legal requirements.
The closing company, attorney, or real estate professional may assist with the form, but the new owner should verify that it was properly completed and delivered.
When Will the Higher Tax Bill Appear?
The timing varies by closing date and local tax schedule. The property’s taxable value generally uncaps in the calendar year following a qualifying transfer, while tax bills may be issued on local summer and winter schedules.
This can create a delayed effect:
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The buyer closes using the seller’s existing taxable-value information.
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The mortgage payment initially reflects an escrow estimate based on available bills.
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The assessor uncaps taxable value in the following year.
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A later tax bill reflects the new value.
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The mortgage servicer pays the higher bill from escrow.
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The next escrow analysis identifies a shortage and a higher projected tax expense.
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The borrower’s monthly payment increases to fund the new amount and possibly repay the shortage.
The exact sequence depends on the property, local billing dates, servicer, closing date, and initial escrow setup.
How Uncapping Can Raise a Mortgage Payment
Most fixed-rate mortgages have a principal-and-interest payment that stays the same. The total monthly payment can still change when escrowed taxes or insurance change.
A mortgage servicer generally reviews the escrow account periodically. If taxes rise after uncapping, the account may not contain enough money to cover the new bill. The servicer may then:
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Increase the monthly tax portion for the coming year
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Collect money to repay the escrow shortage
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Allow the borrower to pay the shortage in a lump sum, depending on servicing rules
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Adjust the escrow cushion within applicable limits
The temporary shortage repayment can make the payment increase appear larger than the underlying annual tax increase. After the shortage is repaid, the payment may adjust again, but it will still need to fund the higher ongoing taxes.
Buyers should distinguish between a fixed interest rate and a fixed total housing payment. Fixed rate does not mean taxes and insurance remain fixed.
A Mortgage Payment Example
Suppose a buyer’s initial escrow calculation uses annual property taxes of $4,800, or $400 per month. After uncapping, the annual bill becomes $7,200, or $600 per month.
The ongoing monthly difference is $200. If the escrow account also paid a bill that was $2,400 higher than expected, the servicer may collect an additional amount to restore the shortage. The payment increase during the shortage-repayment period could therefore exceed $200 per month.
This is only an illustration. Actual escrow calculations are governed by the loan documents, servicing rules, account activity, cushion, insurance changes, tax due dates, and other factors.
The best time to evaluate this possibility is before making an offer, not after the new bill arrives.
How to Estimate Future Michigan Property Taxes
1. Find the parcel information
Obtain the parcel identification number, current assessed value, SEV, taxable value, exemption percentage, millage rates, and special assessments.
2. Contact the local assessor
Ask how transfers are handled and whether the office offers an online tax estimator. Be clear that you want a planning estimate for the buyer after a transfer, not a copy of the seller’s current bill.
3. Contact the local treasurer
Confirm current millage information, billing schedule, unpaid taxes, and special assessments.
4. Ask about the Principal Residence Exemption
Explain whether the property will be your principal residence. Ask what form and deadline apply.
5. Include both summer and winter bills
Some buyers notice only one tax bill in a listing or public record. Add all applicable annual bills when estimating the monthly cost.
6. Add special assessments separately
Road, sewer, water, drainage, or other assessments may not behave like standard ad valorem property taxes. Confirm the balance, payment schedule, and responsibility at closing.
7. Give the estimate to the lender
Ask the mortgage professional to update the payment and qualification analysis using the more realistic figure.
Better Neighbor Mortgage’s mortgage calculators can help with an early estimate, but a local tax estimate is needed for a property-specific budget.
Why Online Tax Calculators Can Disagree
Online calculators use different assumptions. One may estimate taxes from half the sale price, another may use current SEV, and another may rely on last year’s bill. Some include the PRE automatically, while others do not.
Results may also differ because of:
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Updated or outdated millage rates
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Multiple school districts within a city or township
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Special assessments
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Partial exemptions
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New construction or property additions
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Incorrect parcel data
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A recent boundary or classification change
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Different interpretations of the transfer date
Treat an online calculator as a planning tool. The assessor and treasurer are the authoritative local contacts for the parcel’s current records and procedures.
What About New Construction?
New construction can create additional tax-estimation challenges. A current tax bill may reflect vacant land, an incomplete home, or only part of the final improvements. As construction is completed, the assessor may add value for the new building and site improvements.
The future tax bill may therefore change because of both the ownership transfer and the completed construction. Buyers should ask:
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What portion of the home is included in the current assessment?
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When will the completed improvement be added?
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Is the current bill based only on land?
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What value does the local assessor expect to use for planning purposes?
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Are special assessments or utility charges pending?
The builder’s estimate can be helpful, but the local assessor determines the official value.
Condominiums and Property Taxes
Condominium units are individually assessed real property, and taxable-value uncapping can apply after a qualifying transfer. Similar units in the same development may have very different tax bills because their owners purchased at different times or have different exemptions.
Do not use a neighbor’s bill as a direct prediction. Confirm the specific unit’s parcel information, taxable value, SEV, PRE status, special assessments, and local millages.
Condo buyers should also budget separately for association dues and potential association assessments. These costs are not included in the property tax bill but may be included in mortgage qualification.
Investment Properties and Second Homes
A property that is not the owner’s qualifying principal residence may not receive the PRE. That can result in a higher effective millage rate than a comparable owner-occupied home.
Investors should also review:
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Rental registration or inspection charges
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Local licensing requirements
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Non-homestead school operating taxes
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Insurance premiums
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Association rental restrictions
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Maintenance reserves
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Income-tax considerations
Mortgage and tax treatment are separate questions. A property can qualify for financing while receiving different tax treatment because of occupancy or ownership.
Common Mistakes Michigan Homebuyers Make
Using the seller’s tax bill as the future estimate
The seller’s taxable value may be capped far below SEV. Ask for an estimate after transfer.
Assuming taxes equal half the purchase price times the millage
This shortcut can be useful for rough planning, but purchase price does not automatically set true cash value or SEV.
Forgetting the PRE affidavit
The seller’s exemption does not remove the buyer’s responsibility to establish eligibility and file the required form.
Looking at only one annual bill
Include all summer and winter taxes plus special assessments.
Believing a fixed-rate mortgage payment can never change
Principal and interest may remain fixed while escrowed taxes and insurance change.
Ignoring the delayed escrow effect
The new tax bill may arrive after closing, and the payment impact may appear during a later escrow analysis.
Treating nearby homes as identical
Different purchase dates, taxable values, exemptions, millages, and assessments can produce different tax bills.
A Homebuyer’s Property Tax Checklist
Before making an offer:
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Locate the parcel’s current assessed value, SEV, and taxable value
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Confirm the current PRE percentage
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Identify the city or township, county, and school district
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Review summer and winter bills
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Ask about special assessments
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Request an after-transfer estimate from the local assessor
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Include the estimate in the full mortgage payment
During the mortgage process:
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Tell the lender whether the home will be a principal residence
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Review the initial escrow calculation
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Ask which tax figure was used for qualification
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Confirm that the Property Transfer Affidavit will be filed
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File the PRE affidavit if eligible
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Keep copies of all forms and delivery confirmations
After closing:
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Watch for the assessment notice and tax bills
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Confirm the assessor has the correct mailing address
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Review exemption status
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Read the mortgage servicer’s annual escrow statement
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Contact the assessor promptly if property information appears wrong
Can You Appeal a Michigan Assessment?
Michigan property owners generally receive an annual assessment notice showing assessed value, SEV, taxable value, classification, and exemption information. The notice also explains appeal rights and deadlines.
An owner who disagrees with the assessment may have a limited period to contact the assessor or appeal through the local board of review. Further appeal rights may be available through the Michigan Tax Tribunal, depending on the issue and property type.
Appeal procedures are deadline-sensitive. Paying a price below the assessed market value does not automatically guarantee a reduction, just as paying above it does not automatically establish a higher assessment. Evidence may include comparable sales, property condition, appraisal information, photographs, and factual corrections.
Consult the assessment notice, local assessor, and qualified tax or legal professional for current procedures. A mortgage company cannot determine the official assessment or guarantee the result of an appeal.
Frequently Asked Questions
Do Michigan property taxes increase immediately after closing?
Not necessarily. Following a qualifying transfer, taxable value generally uncaps in the calendar year after the transfer. The higher bill and escrow effect can appear later based on local billing and servicing schedules.
Will my taxable value equal half my purchase price?
Not automatically. Assessed value is generally 50 percent of true cash value, but the purchase price is not legally presumed to be the property’s true cash value. The assessor applies the jurisdiction’s valuation methods.
Does the Principal Residence Exemption reduce all property taxes?
No. A full PRE generally exempts a qualifying principal residence from up to 18 mills of local school operating tax. Other taxes and assessments remain.
Does the seller’s PRE transfer to me?
Do not assume it does. A buyer who qualifies generally needs to file the appropriate affidavit with the local assessor by the applicable deadline.
Can my fixed-rate mortgage payment rise because of property taxes?
Yes. A fixed interest rate keeps the principal-and-interest calculation stable, but the total payment can rise when escrowed taxes or insurance increase.
What is an escrow shortage?
An escrow shortage occurs when the account balance is below the amount needed under the servicer’s analysis. A higher tax bill after uncapping can contribute to a shortage and a payment adjustment.
Who can give me an official tax estimate?
The city or township assessor and treasurer are the best local sources for parcel records, millages, exemptions, billing, and estimating procedures. A lender can then use that information in the mortgage budget.
Are all transfers subject to uncapping?
No. Michigan law recognizes certain exempt transfers. The rules are specific, and supporting documentation may be required. Consult the assessor or a qualified legal or tax professional.
Build the Future Tax Bill Into Your Mortgage Plan
Michigan property tax uncapping is manageable when buyers plan for it before closing. The essential step is to look beyond the seller’s current bill and estimate the property’s taxes after transfer using local information.
Better Neighbor Mortgage helps buyers compare financing options and understand the full home loan process. If you are considering a home in Birmingham or elsewhere in Michigan, share the property address and tax estimate with the team early. A more accurate tax figure can produce a clearer payment estimate, a stronger budget, and fewer surprises after closing.
Schedule a call with Better Neighbor Mortgage to discuss your homebuying plans and financing options.
