Property taxes are one of the main components of most monthly mortgage payments and can easily total thousands of dollars per year. As a result, they are an important consideration when looking to buy a home.

Property taxes are a primary source of revenue for county and municipal governments in Tennessee. While most property owners understand that increases in the assessor’s appraised value of their property or the tax rate can increase their property tax, few understand how their annual property tax is calculated.

To determine a property’s tax liability, a property owner must know the assessor’s appraisal value, the assessment rate and the county and the municipality’s tax rates.

Appraisal Value
An evaluation of a property’s value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is sometimes chosen by the lender, but the appraisal is paid for by the borrower.

Assessment Rate
A property’s classification determines the assessment rate.

Tax Rates
Property located within a municipality is charged both county and municipal property taxes.

Tax rates are applied to the assessed value to determine the property’s tax liability.

Existing Homes
For existing homes, property taxes are pro-rated at closing between the buyer and seller based upon the closing date, the dates that property taxes are due in the respective county and municipality and information on tax assessments and rates available at closing.

Payment of taxes
Buyers should ask if their lender will escrow a portion of their monthly mortgage payment to cover annual property taxes. If so, the lender will pay annual property taxes directly to the municipality and county as they become due. If not, the buyer will be responsible for paying them directly.