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In this guide: An explanation of the “Mello-Roos” taxes in California affect on home buyers, including the pros and cons of buying in such a district.
You’re in the market to buy a home in California. You find a home in a nice neighborhood that meets your needs and falls within budget, so you’re eager to make an offer.
But your real estate agent tells you that this home is located in a Mello-Roos district and therefore has high property taxes.
Wait … what? What is a Mello-Roos tax in California? Why do some neighborhoods have these additional taxes while others don’t? And how might it affect your property tax bill if you decide to buy a home in such a neighborhood? Ultimately, how do Mello-Roos taxes in California affect home buyers?
Those are just some common questions home buyers ask about Mello-Roos taxes. And we will tackle all of them (and more) throughout this home buyer’s guide.
When buying a home in California, you might encounter what’s known as a “Mello-Roos districts.” Also known as a Community Facilities District (CFD), they’re a common sight within the California real estate market, especially in the newer communities.
A Mello-Roos tax is a special assessment added to your property tax bill. It’s used to fund new infrastructure and amenities within a specific development, neighborhood, or community. This particular tax is unique to California, but other states have their own versions.
“Mello-Roos” comes from the two California politicians who sponsored the Community Facilities Act of 1982: Senator Henry Mello and Assemblyman Mike Roos. This act gave local governments and developers in California a new way to raise funds for infrastructure and amenities in specific communities.
It also allowed them to circumvent property tax limitations put in place by previous legislation. How? Because a Mello-Roos is technically a “parcel tax.”
Unlike a traditional property tax, which is based on the assessed value of your home, a parcel tax like Mello-Roos is based on characteristics of the property itself. It might be based on things like square footage, lot size, property type, etc. It might also be a flat rate applied to all parcels within the district.
In California, Mello-Roos districts often entice home buyers with promises of top-notch schools, beautiful parks, and well-maintained roads. And that might be true, for the most part.
But a savvy home buyer will want to know if the benefits of Mello-Roos are worth the long-term financial commitment. In short, you must figure out what you get for your money.
To determine this, you’ll need to understand the pros and cons of Mello-Roos districts in California from a homeowner’s perspective. So, let’s explore some of those pros and cons.
Unfortunately, there is no standard tax rate for Mello-Roos districts in California. So you’ll have to look it up for each community where you’re considering buying a home. The tax rate can vary significantly from one district to another.
More than any other factor, the cost of the infrastructure or services being funded by the Mello-Roos district will determine the tax rate. A larger, more ambitious project (like multiple schools and parks) will bring a higher rate than a district focused on simpler necessities.
The tax burden spread out could be based on how big your house or lot is, the type of property, or even a simple flat rate for everyone.
According to the California Title Company:
“In general, the special taxes and assessments do not exceed 1% to 1.5% of the market value of new homes. Moreover, all annual taxes (including property tax) usually do not exceed 2% to 2.5% of the home’s market value.”
But there’s plenty of transparency here. Potential home buyers within a California Mello-Roos district must be given detailed information about the tax rate, projected increases, and future obligations. Full disclosure is required by law.
So, is it worthwhile to buy a home in California in a Mello-Roos district?
There isn’t a clear yes-or-no answer to this question. Every home-buying scenario is different because there are many variables involved. As a buyer, you must weigh the specific benefits against the additional costs.
Here are some questions to answer before buying a home in a Mello-Roos district:
As with other real estate-related decisions, a little research goes a long way!
If you’re ready to buy a home, whether in a Mello-Roos district or elsewhere in the state, we’re here to help. Reach out to Sammamish Mortgage to have your questions answered and to get mortgage pre-approval in California today!
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.