Home buyers are naturally attuned to the sales price of a home and the interest rate of the mortgage when considering housing costs. However, the impact from property taxes on the cost of home ownership is not fully appreciated by many buyers until after narrowing the search to a specific geographic area. In Ohio’s Hamilton County, there are 120 different property tax districts.  Across these property tax districts, the typical yearly property tax rate for owner-occupied residential homes ranges from 1.38% to 3.69% of the home’s market value. This wide variability can have a dramatic difference on the monthly mortgage payment when all other variables are held constant. The effect of the historically low interest rates on mortgages has actually exaggerated the impact from differing property tax rates on the monthly mortgage payment and buying power. The result is that the sales price that a buyer can afford in one tax district can be tens of thousands of dollars more or less than in another tax district. The purpose of this article is to illustrate the variation in property tax rates across Hamilton County, Ohio, thereby allowing buyers to make better informed decisions earlier in the home buying process. Armed with this information, buyers can make true apples to apples comparisons between home prices when shopping for homes in more than one property tax district.

Property Tax Rates Range from 1.38% to 3.69% of Market Value in Hamilton County

The Hamilton County Auditor provides a table of the yearly taxes due per $100,000 of market value for each of the 120 tax districts (see footnote 1 for details). The distribution of property tax per $100,000 of market value is presented in Figure 1.

Figure 1. Distribution of yearly property taxes for every $100,000 of market value for each of the tax districts in Hamilton County.

Property tax rates range from 1.38% to 3.69% of market value across all tax districts in Hamilton County. This equates to a range of $1,379 to $3,692 in property taxes per year for every $100,000 in market value. The majority of tax districts fall within the range of $2,073 to $2,767 per year for every $100,000 of market value (Table 1).

Table 1. Summary Statistics of Property Taxes Per $100,000 Valuation for Residential, Owner-Occupied Homes in Hamilton County

 Taxes Per $100k Valuation
Mean$2,462.39
Median$2,431.64
Maximum$3,692.09
Minimum$1,379.48

It is clear from this table that the property taxes for two homes with the same market value could have yearly property tax liabilities that differ by several thousands of dollars depending upon the tax district.  There are two results from this. First, the monthly mortgage payment for two homes that were purchased for the same amount could differ by several hundred dollars. Second, a buyer who is shopping for homes and can afford a monthly payment of $1500 per month, for example, has a budget for home prices that could differ by more than $100,000 depending upon the tax district. The rest of the article will explore both of these consequences.

Same $250,000 Home Price, Very Different Mortgage Payments

The average home sales price in Hamilton County is currently about $250,000. However, the variation in property tax rates means that the mortgage payment for a home purchased for $250,000 can vary dramatically based on tax district. Keeping all other variables the same (see footnote 2), the monthly mortgage payment for the average $250,000 home could range from as little as $1200 to as much as $1682 per month depending upon the tax district (Table 2 and Figure 2). 

Table 2. Summary Statistics of Mortgage Payment for $250,000 Home Across Districts in Hamilton County

 Mortgage Payment (2.87% APR for 30 years, $250k sales price, 20% Down)
Mean$1,426
Median$1,419
Maximum$1,682
Minimum$1,200

Figure 2. Distribution of Monthly Mortgage Payments (PITI) Using a Sales Price of $250,000 as an Example

Different Tax Districts, Different Budgets

There has been wide variation in property tax rates across Hamilton County for years, but now it is combined with historically low interest rates. The average interest rate for homes sold in the Cincinnati area during October 2020 was just 2.87%. This low rate means the principal and interest payment for every $100,000 borrowed is just $414.63 per month. The result is an exaggerated impact from property tax rates on buying power when shopping for a home.

Many buyers have a maximum monthly payment in mind, and work backwards to determine how much home they can afford. The variation in property taxes across Hamilton County means that the maximum sales price or buying power they have can vary dramatically by tax district. This is illustrated by calculating the sale price that would result in a monthly mortgage payment of $1500, as an example, while holding the loan variables and home owner’s insurance premium constant (see footnote 2 for assumptions).

Using these assumptions, a buyer could purchase a home in Hamilton County with a total monthly mortgage payment of $1500 and spend from as little as $221,571 or as much as $317,131 depending upon the tax district (Figure 3, Table 3). The is a range of nearly $100,000, and drives home the importance of considering property taxes when shopping for a home. It also means that all buyers benefit from low mortgage interest rates, but those buyers shopping in tax districts with low property taxes will enjoy the greatest advantage because property taxes are a smaller proportion of the payment.

Table 3. Summary Statistics of Buying Power for Maximum Payment of $1500 Per Month

 Buying Power ($1500 monthly, 20% down, 2.87% APR for 30 years)
Mean$265,360
Median$265,127
Maximum$317,171
Minimum$221,571

Figure 3. Distribution of Sales Prices That Would Result in a Monthly Payment of $1500 Across Districts in Hamilton County

Summary

The goal of this article was to demonstrate how homes with the same sales price can have very different monthly payments and how the sales price that a buyer can afford can differ by tens of thousands of dollars depending upon the tax district. Armed with this information, buyers can make a better decision about where they buy a home. If buyers are shopping in more than one tax district, they can also better estimate the true difference in home cost by taking into account property taxes, rather than only comparing based on sale or list price. In the process of creating this article, I built a spreadsheet, which I would be happy to share, that allows you to adjust any of the variables from mortgage APR, mortgage term, desired monthly payment, or yearly home owner’s insurance premium and better estimate the sales price that you can afford in any of the 120 tax districts in Hamilton County. Please contact me for more information.

Reference

Residential Property Taxes per $100k from Hamilton County Auditor https://www.hamiltoncountyauditor.org/pdf/re_100k2020_taxpayer.pdf

Footnotes

1. The rates provided by the Hamilton County Auditor are for residential homes where the owner is entitled to the owner-occupied credit, the non-business credit, and the sales tax credit.

2. The estimated monthly payment and buying power calculations assume a 20% down payment, 30 year fixed-rate mortgage at 2.87% APR, and a yearly home owner’s insurance premium of $1000. The 2.87% APR was the average rate for home buyers in the Cincinnati area for October 2020, according to the Cincinnati Area Board of Realtors.