How Texas Property Taxes Affect Your Mortgage: What Every Buyer Must Know

Many Texas homebuyers focus on the mortgage interest rate and overlook the impact of property taxes on their total monthly payment. This is a costly mistake. In Texas, property taxes are a major component of housing costs and can add thousands of dollars annually to the cost of homeownership.

How Texas Property Taxes Work

Texas has no state income tax, and the state relies heavily on property taxes for public funding. Property is appraised by county appraisal districts, which are independent local entities. The appraised value is supposed to reflect 100% of market value as of January 1 each year. Taxing entities — school districts, cities, counties, special districts — each set their own tax rates, expressed in dollars per $100 of appraised value. The combined rate from all entities determines your total property tax bill.

In major Texas metros, combined rates commonly range from 1.8% to 2.8% of appraised value. On a $400,000 home, that is $7,200 to $11,200 per year — $600 to $933 per month added to your housing cost beyond principal and interest.

Homestead Exemptions

Texas offers a mandatory homestead exemption that reduces the appraised value used to calculate school district taxes by $100,000. School district taxes are typically the largest component of the total tax bill, so this exemption generates meaningful savings. Additional exemptions are available for seniors (65+), disabled individuals, and surviving spouses of first responders killed in the line of duty. To receive the homestead exemption, you must apply with your county appraisal district and the property must be your primary residence.

The 10% Appraisal Cap

For homestead properties, the appraised value used for tax purposes cannot increase by more than 10% per year, regardless of how much the market value increases. This cap provides significant protection during hot real estate markets — in areas where home values have risen 30-40% in a year, homestead owners' tax bills only reflect a 10% increase. However, the protection resets when a property changes hands: new buyers are assessed at full market value in the year following purchase.

Escrow Accounts and Property Tax

Most mortgage lenders require property tax (and homeowners insurance) to be paid through an escrow account. The lender estimates your annual property tax, divides by 12, and adds that amount to your monthly mortgage payment. The lender then pays the tax bill from the escrow account when it is due. Lenders are required by law to maintain a buffer in the escrow account. If your actual taxes are higher than estimated, you will receive an escrow shortage notice and face either a lump sum payment or an increased monthly payment.

Use our Texas mortgage calculator to estimate total PITI payments with property tax, or read our guide on comparing Texas mortgage lenders.