Here's a money leak I see all the time: new homeowners paying more property tax than they need to because they never applied for their homestead exemption.
It's not your fault. Nobody mentions it at closing, and in a lot of places it isn't automatic.
What is a homestead exemption?
Many states and local governments give a property tax break on the home you actually live in, your primary residence. Depending on where you live, it might:
- Lower your home's taxable value by a set amount or percentage
- Cap how much your assessment can go up each year
- Offer extra breaks for seniors, veterans or homeowners with disabilities
The name, the amount and the rules change from state to state, and sometimes county to county.
Why new homeowners miss it
- It's often not automatic. You may have to file an application with your county or state.
- There can be a deadline. Miss it and you might wait a full year for the break.
- The previous owner's exemption doesn't transfer. Your first tax bill might reflect their status, not yours, and then change.
Why this matters for your mortgage
If your taxes are paid through escrow, your property tax bill drives part of your monthly payment. A homestead exemption can lower that bill, which can lower your escrow payment after your next escrow analysis.
It works the other way too. The biggest escrow shortage I ever saw, over $60,000, happened in part because a home lost a tax exemption and nobody caught it for years. Knowing your exemption status protects you in both directions.
How to check yours in 10 minutes
- Look up your property on your county or state tax assessor's website and see whether a homestead (or "principal residence") exemption or credit is listed.
- If it's not there, find the application and the deadline for your state.
- Keep a copy of your approval with your important home papers.
- Watch your next tax bill and escrow analysis to make sure the savings actually show up.
I put together a directory that shows each state's program and where to apply, so you don't have to go digging.
Common questions
What is a homestead exemption?
It's a property tax break many states and local governments give on the home you live in as your primary residence. Depending on where you live, it can lower your home's taxable value or cap how fast your assessment can rise.
Is a homestead exemption automatic?
Often it isn't. In many places you have to apply, and there may be a deadline. Check with your county or state tax office.
How does a homestead exemption affect my mortgage payment?
If your property taxes are paid through escrow, a lower tax bill can lower your escrow payment after your next escrow analysis. Losing an exemption can do the opposite and cause an escrow shortage.
Keep more of your money
Homeowner HQ puts your mortgage, money and home in one place: your PMI drop-off date, homestead, tax appeal and PMI removal letters ready to send, and a binder for your important papers. $14.99, one time.