Texas property tax escrow in your first year — and the year-two payment jump
Texas has no state income tax. The state pays for itself with high property taxes. For your first year as a Texas homeowner, your escrow likely under-collects — then your payment jumps in year two when the assessor catches up.
How first-year Texas escrow goes wrong
When you close on a Texas home, the lender calculates your monthly escrow using the last available tax bill. On a re-sale, that's the prior owner's bill. On new construction, it's often the unimproved-lot bill — sometimes $400/year on land that will be assessed at $9,000/year once the home is built.
Year one feels fine. Year two, the assessor reassesses based on the completed home. Your escrow shortage hits, the lender catches up, and your payment jumps — typically $250–$500/month higher for the foreseeable future.
The year-two payment shock — example
Year two: your payment doesn't just rise by the new tax amount. It also includes a catch-up for the 12 months you underpaid in year one. That double-hit is what catches new Texas homeowners off guard.
| Item | Year 1 | Year 2 |
|---|---|---|
| Home value (assessed) | $95,000 (unimproved) | $425,000 |
| Property tax (Travis County) | $1,900 | $9,775 |
| Monthly escrow share | $158 | $815 |
| Plus shortage catch-up (12 mo) | — | +$657 |
| Total monthly PITI impact | Year 1 normal | +$1,314/mo |
How to plan for it
- Estimate the year-two true tax using comparable assessments in your subdivision.
- Ask your lender to escrow at the projected amount (some allow voluntary over-escrow).
- Save the difference yourself if your lender won't — month one through twelve.
- Protest your assessment by May 15 each year. Many homeowners successfully reduce 5%–15%.
- Apply for your homestead exemption immediately after closing — it caps annual increases at 10%.
Common questions
Will my lender warn me about this?
Some do, most don't. We always flag it before close on Texas new construction.
What's MUD/PID and how does it affect this?
MUD (Municipal Utility District) and PID (Public Improvement District) taxes are on top of regular property tax. They appear on the tax bill but often aren't reflected in year-one escrow estimates. New subdivisions in Williamson, Hays, Comal counties commonly have MUDs.
Does protesting my assessment really help?
Yes. The Texas Comptroller's data shows roughly 60% of formal protests in major counties result in some reduction. A $50K reduction on a $500K assessment saves $1,150+/year in Travis County.
Can I appeal to homestead-cap the assessment growth?
Yes. The Texas homestead exemption caps annual assessed value growth at 10%. Once your homestead is in place, the year-three-and-beyond increases are limited even when market values climb.
How Mike + Cornerstone help
Texas property tax is the single biggest qualifying-math surprise for out-of-state buyers. We help you model it correctly before you write the offer, set your escrow expectations realistically, and coach you on protesting and homestead-exemption timing so the year-two hit is as small as possible.
Talk to Mike first Get pre-approved
No pressure, no commitment. Free 20-minute consult. Mike will look at your scenario and tell you straight whether this works for you.