If you are buying a home in Vermont you might find your purchase impacted by a tax prebate. Understanding what a Vermont tax prebate is, and how it can affect your home purchase can help you avoid surprises during the buying process.
What is a Vermont Tax Prebate
The state of Vermont offers residents the opportunity to qualify for a tax prebate based on their income. A Vermont resident would apply for a prebate before the April 15th tax due date and if they meet the requirements a property tax credit would go into effect for the tax period of July – June. If your Vermont home is your primary residence and you qualify for a tax prebate it will effectively lower the real estate taxes due annually by the tax credit amount.
Essentially you are paying taxes on your home based on your income rather than the assessed value of your home.
Buying a Home with a Tax Prebate
When you are buying a home that currently has a tax prebate based on the sellers income you can benefit because you are eligible to keep that discount through the remainder of the tax period (July-June.) While a discount sounds great it is important to note that you will be required to reimburse the seller for taxes that have already been paid based on the date of the sale as well as funding escrow account for the taxes due for the remainder of that tax period.
For any taxes due beyond the current tax period prebate the buyer will be required to pay the full tax amount without the prebate. Depending on your lender and loan product you can expect to prepay taxes for up to 6 months.
You can click here to calculate if you will likely be eligible for your own prebate. However even if your income will be within the prebate requirements you still need to pay the full amount at closing to ensure the taxes due are prepaid in full. While the money will come back to you, it will take some time.
In contrast if you are buying a home that does not currently have a tax prebate but you anticipate qualifying for one, you will need to finish paying for the taxes for the current period at the full amount and you can apply for your own tax prebate by April 15h as long as you own the home by April 1st. The lender will refund you for overages you may have paid before the prebate goes into effect.
What is an Escrow Account?
When you buy a home you have the option to escrow your taxes. This means that any taxes due to the city you live in as well as any insurance premiums can be rolled into your monthly payment and the mortgage company will make these payments on your behalf. Some buyers can choose not to escrow however others will be required to escrow based on the lender, amount of down payment and loan product.
An escrow account can be a huge peace of mind for a homeowner so they can be confident their taxes and insurance are being paid in a timely manner. However when you escrow you will see that you are required to bring extra money to closing to fund the escrow account based on the requirements of the lender. They want to be confident they have enough money to cover your taxes without issue. Even if you choose to escrow for taxes and insurance, it’s important to remember that the town and your insurance company are still required to send you a bill.
Avoid a Tax Prebate Surprise
If you are buying a home in Vermont take a moment to ask your local lender about how the Vermont prebate could impact your funds due at closing. The sooner you identify any discounts currently applied to the home and how it changes the amount of your taxes due in the following year the better.
If you are looking to buy a home in Vermont or elsewhere in the Upper Valley, you need a team of local real estate experts on your side. Our team collectively boasts over a century of industry experience and is well versed in a variety of loan programs including fixed mortgages, ARMs, VA loans, FHA, first time homebuyer and more! We have the privilege of partnering with the best local agents, appraisers and attorneys the Upper Valley has to offer. When you work with Legacy Mortgage you are working with the best local professionals from beginning to end. Reach out to the Legacy Mortgage team to get the loan process started. Call us today, 603-643-7400.