When cashing out your home's equity, your lender appraises the property to determine whether it meets minimum value requirements. A high appraisal value boosts your borrowing power in a cash-out refinance. A tax assessor's reappraisal, however, can negatively affect property taxes. With cash-out refinancing, you need not worry about triggering a property reappraisal and increased property taxes. Your tax authority reassesses your home's value using criteria that do not include refinances.
A cash-out refinance pays off an existing loan with proceeds from a new loan. The new loan amount exceeds that of the previous loan, as you roll closing costs into the new balance and receive cash at closing. You must have sufficient equity in your home to qualify for this type of refinance -- typically at least 20 percent. Depending on the lender, loan type and property type, lenders usually allow you to borrow between 70 percent and 85 percent of your home's appraised value.
Tax authorities conduct property value reassessments when one of the following situations occurs: a change in ownership, new construction or partial construction is done on the home and when home values decline. When market values fall, homeowners may appeal the assessor's value to reduce their property taxes. In the absence of these occurrences, tax authorities typically reassess values once every two to three years, website Kiplinger says. Because a cash-out refinance does not involve a change in ownership, but rather a change in the loan, the transaction itself generally does not affect your property taxes.
You trigger a tax reassessment if your cash-out refinance involves construction, such as a room addition or adding another structure to the property, thereby raising your home's value. The tax assessor reviews building permits and reassesses when either the work is completed after refinance or only part of the work is completed on the date the refinance lien is recorded with your local land records office. Cash-out refinances used to replace structures or make structural repairs do not trigger reassessments.
You may have to pay a supplemental property tax in California, in addition to your annual property tax bill. The supplemental tax affects homes after construction is complete. The state taxes you on the difference between the home's previously assessed value and the newly assessed value. You receive the bill in as few as three weeks or up to six months after you finish construction, depending on the county and how long it takes the tax authority to re-assess, according to the California Land Title Association. You can pay the supplemental bill in two installments.
- Inman News: Will Refinancing Trigger A Property-Tax Reassessment?
- Los Angeles County Office of the Assessor: Real Property Assessments
- Kiplinger: How to Appeal Your Property-Tax Bill
- Freddie Mac: Cash-Out Refinance Mortgage Loan-to-Value Ratios
- HUD: FHA Mortgage Letter 2009-08 -- Limits on Cash-Out Refinances
- California Land Title Association: Title Consumer Series: Understanding Supplemental Property Taxes
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