Property Tax & Mortgage: Texas Rates, Escrow & Why You Pay

Property Taxes: The Hidden Cost That Shapes Your Monthly Payment

Property taxes are one of the most overlooked costs of homeownership. While buyers focus on mortgage rates and down payments, property taxes can add $200 to $1,000+ per month to your housing costs depending on where you live.

In this Deep Dive, Emmett breaks down exactly how property taxes work, why they're included in your mortgage escrow payments, and why they matter more than most buyers realize.

How Property Taxes Are Calculated

Assessed Value × Millage Rate = Your Tax Bill

Property taxes are annual taxes levied by local governments — counties, cities, and school districts — based on your home's assessed value. Your tax bill is calculated by multiplying that assessed value by the local millage rate (the tax rate per $1,000 of value).

It's important to understand that assessed value often differs from market value. Many counties assess homes at 80–100% of fair market value, but the exact ratio varies by jurisdiction. This is why two similar homes in different counties can have very different tax bills.

Why Do We Pay Property Tax?

Property taxes are the primary funding mechanism for local public services. Your property tax payments by county go directly toward:

• Public schools — typically 40–60% of your total property tax bill
• Roads and infrastructure — street maintenance, bridges, and public transit
• Emergency services — fire departments, police, and EMS
• Municipal government — parks, libraries, water/sewer systems

Without property taxes, these essential local services would need to be funded through other mechanisms like higher sales or income taxes.

Is Property Tax Included in Mortgage Payments?

How Escrow Accounts Work

Yes — property tax is typically included in your monthly mortgage payment through an escrow account. Your lender collects 1/12th of your annual tax bill each month, holds it in escrow, and pays the tax authority on your behalf when bills come due.

Your escrow payments cover two main items that appear on your mortgage statement:

• Property taxes — your annual tax bill divided into 12 monthly installments
• Insurance premiums included in escrow — homeowners insurance (and flood insurance, if required) is also collected monthly

This is why your total monthly mortgage payment (often called PITI) includes four components: Principal, Interest, Taxes, and Insurance. Higher property taxes directly reduce how much house you can afford because they increase your total monthly obligation.

When Escrow Adjustments Happen

Lenders conduct an annual escrow analysis to ensure they're collecting enough. If your property tax assessment increases — which is common in appreciating markets — your monthly escrow payment will rise too.

This catches many homeowners off guard. Even with a fixed-rate mortgage, your total monthly payment can increase year over year because of rising property taxes and insurance premiums included in escrow.

Texas Property Tax Rate: A Case Study

Why Texas Has One of the Highest Effective Property Tax Rates

The Texas property tax rate averages 1.6–1.8% of assessed value — among the highest effective property tax rates in the nation. Texas has no state income tax, so local governments rely heavily on property taxes to fund schools, roads, and emergency services.

On a $400,000 home in Texas, that translates to approximately $6,400–$7,200 per year, or $533–$600 added to your monthly mortgage payment through escrow. That's a significant impact on affordability compared to low-tax states.

Texas Property Tax Payments by County

The effective property tax rate varies significantly across Texas counties. Here's how some major areas compare:

As you can see, property tax payments by county vary by hundreds of dollars per month — even within the same state. This is why comparing effective property tax rates is essential when deciding where to buy.

State-by-State Property Tax Comparison

The Difference Is Staggering

As Emmett highlights in the video, the average property tax bill was over $4,000 in 2024. But that average hides enormous regional disparities.

On a $400,000 home, annual property taxes range from about $1,280 in Hawaii to $8,800+ in high-tax states — that's a $550/month difference in your mortgage escrow payment from taxes alone.

California benefits from Proposition 13, which caps property taxes at roughly 1% of purchase price with limited annual increases.

Texas has no state income tax but compensates with one of the highest effective property tax rates in the nation. Understanding your state's approach is critical to budgeting accurately.

Exemptions That Can Save You Thousands

Emmett walks through the most common property tax exemptions that homeowners should apply for immediately after closing:

• Homestead Exemption — reduces the taxable value of your primary residence. In Texas, this removes $100,000 from your assessed value for school district taxes, saving roughly $1,500–$2,000 per year.
• Senior/Age Exemptions — additional reductions for homeowners over 65 in many states, plus a tax ceiling freeze in Texas.
• Veteran/Disability Exemptions — VA loan borrowers with service-connected disabilities may qualify for partial or full property tax exemptions.
• Agricultural/Conservation Exemptions — for USDA-eligible rural properties with qualifying land use, reducing the taxable value significantly.

How to Appeal an Over-Assessment

If you believe your assessed value is too high, you can protest to your county appraisal district. In Texas, the deadline is typically May 15th. Successful appeals can reduce your effective property tax rate on paper by lowering the assessed value your taxes are calculated against.

Gather evidence including recent comparable sales, photos of property condition issues, and any appraisals you've received. Many homeowners save hundreds or thousands annually by protesting.

How Property Taxes Affect Mortgage Affordability

PITI: The Full Picture on Your Mortgage Statement

When your lender calculates how much house you can afford, they look at your total PITI payment — Principal, Interest, Taxes, and Insurance. Higher property taxes reduce your maximum loan amount because they eat into the payment your income can support.

Two identical $400,000 homes in different counties can have vastly different affordability profiles based solely on the effective property tax rate. A home in a 2.2% county costs $400+/month more in escrow than one in a 1.0% county.

Why This Matters for First-Time Buyers

This is especially important for first-time buyers and anyone using FHA loans, where debt-to-income ratios are tightly controlled.

Use our mortgage calculator to see exactly how property taxes and insurance premiums included in escrow affect your total monthly payment in any area you're considering.