Texas property taxes usually become part of your monthly mortgage payment: your lender collects one twelfth of the estimated annual tax bill into an escrow account and pays it when due. The homestead exemption removes $140,000 of value from school district taxes, which lowers the tax portion of that payment.
On a $400,000 home with an illustrative 1.00% school tax rate, that cuts about $117 a month. The exemption only applies after you file, so file by April 30 and check your first escrow analysis for a shortage.
How do Texas property taxes become part of my mortgage payment?
Texas property taxes become part of your mortgage payment through an escrow account. Each month your servicer collects one twelfth of the estimated annual tax bill (and homeowners insurance) along with principal and interest, holds it in escrow, and pays the tax bill when it is due. The full payment is often called PITI: principal, interest, taxes and insurance.
Texas has no state property tax and no state income tax, so local taxing units fund schools, counties, cities and special districts through property taxes. That is why the tax slice of a Texas mortgage payment is often larger than in many other states.
Your bill combines the rates of every unit your home sits in, which can include a school district, county, city, community college, hospital district and a MUD or PID. For more on owning in Texas, see our Texas Home Buyer Guide.
Tax bills generally go out in the fall and are due by January 31 of the following year. Your servicer pays from escrow before that deadline, so you usually never see the bill come due yourself.
“Most Texas buyers focus on the rate, but the tax line is the part of the payment that moves after closing. We walk every client through the tax estimate the same way we walk them through the rate.”
— Charlie Cooper, President, Austin Capital Mortgage
How much does the homestead exemption lower my monthly payment?
The homestead exemption lowers your monthly payment by reducing the value your taxes are calculated on.
Since the 2025 tax year, every school district in Texas must exempt $140,000 of a qualifying homestead’s value, up from $100,000, after voters approved Proposition 13 in November 2025. Homeowners 65 or older or disabled get an additional $60,000 off school taxes, for $200,000 total.
The school exemption only applies to the school district’s share of the bill. Counties, cities and some other units can add their own optional exemption of up to 20% of the home’s value, and many offer extra amounts for owners 65 or older.
Whether your area offers these varies, so check your appraisal district’s exemption list.
Here is how the school exemption alone changes the tax portion of a payment on one illustrative home:
| Scenario | Annual property tax | Monthly escrow for taxes | Change per month |
|---|---|---|---|
| No homestead exemption | $8,400 | $700 | None |
| General homestead exemption ($140,000 off school value) | $7,000 | $583 | About $117 less |
| Homestead plus over-65 or disabled ($200,000 off school value) | $6,400 | $533 | About $167 less |
Assumes a $400,000 appraised value, an illustrative 1.00% school tax rate and a 1.10% combined rate for all other taxing units. Actual rates vary by location. Insurance, local optional exemptions and the over-65 school tax ceiling are not included. This example is not a quote or a payment estimate.
Does the homestead exemption cap how fast my taxes can rise?
Yes, a homestead also gets a 10% annual cap on appraised value increases for tax purposes, not counting new improvements. The cap starts January 1 of the tax year after you first qualify for the homestead exemption, so in your first year the appraisal district can still set the value at full market value.
After that, a rising market cannot push your taxable value up by more than 10% a year, which slows how fast the escrow portion of your payment grows. Tax rates can still change.
Why does my mortgage payment change after the first year in a Texas home?
Your payment usually changes after the first year because the escrow estimate made at closing was based on the previous owner’s tax bill, and the first real bill in your name can be different.
Lenders estimate escrow from the best information available at closing, which is often the prior year’s bill. That bill reflects the seller’s exemptions, the seller’s capped value and last year’s rates, not yours.
Common reasons the first-year bill differs:
- The seller’s exemptions disappear. If the seller had a homestead, over-65 or disabled veteran exemption, those benefits stop when ownership changes and the new bill can be noticeably higher until your own exemption is applied.
- The 10% cap resets. The seller’s capped value does not carry over to you, so the appraisal district can move the value up toward the purchase price.
- New construction was taxed as land. A newly built home may have been valued as a lot or a partial build on January 1 of the prior year, so the next bill on the finished home can be several times larger.
- Rates changed. Each taxing unit sets a new rate every year.
“The surprise we see most is a buyer whose escrow was set using the seller’s over-65 bill. The payment looks great at closing and then jumps a year later. Asking for the tax estimate without the seller’s exemptions avoids that.”
— Charlie Cooper, President, Austin Capital Mortgage
What is an escrow shortage and how is it repaid?
An escrow shortage happens when your servicer’s annual escrow analysis projects that the account will not hold enough to cover next year’s bills plus the allowed cushion.
Federal rules (Regulation X) let the servicer keep a cushion of up to one sixth of the year’s estimated escrow disbursements and require it to analyze the account every year.
If the shortage equals one month’s escrow payment or more, the servicer can either let it go or spread repayment over at least 12 months. Many servicers also let you pay the shortage in one lump sum to keep the monthly increase smaller.
A shortage stacks two increases. Your monthly escrow goes up to cover the higher ongoing bill, and you also repay the shortfall from the past year. That is why a first-year escrow analysis can raise a payment by more than the tax change alone.
How do I make sure the homestead exemption actually reaches my payment?
You make sure the exemption reaches your payment by filing it yourself, confirming it is applied, and then making sure your servicer’s escrow analysis uses the lower bill. The exemption does not transfer from the seller and your lender does not file it for you.
- File with your county appraisal district. Use the residence homestead application (Comptroller Form 50-114) or your appraisal district’s online portal. You generally need a Texas driver’s license or ID showing the home’s address.
- Meet the deadline. The standard deadline is April 30 of the tax year. Late applications are generally accepted up to two years after the delinquency date, with a refund of any overpaid taxes.
- Know the purchase-year rule. You generally must own and live in the home on January 1 to get a full-year exemption. Since 2022, a buyer can receive a prorated exemption for the year of purchase if the previous owner did not already claim a homestead exemption for that year.
- Check the notice of appraised value. It shows whether your exemptions are applied. If the value looks high, the protest deadline is generally May 15 or 30 days after the notice is delivered, whichever is later.
- Send the approval to your servicer. If the exemption is approved after your escrow analysis, ask the servicer to rerun the analysis so the lower bill lowers your payment instead of creating a surplus refund next year.
If you are still shopping and want to know what you will need at closing for taxes and the initial escrow deposit, see how much money a first-time homebuyer needs in Texas.
Can I drop escrow and pay Texas property taxes myself?
Some Texas homeowners can pay their own taxes instead of using escrow, but it depends on the loan type and the lender. FHA loans require escrow, most VA lenders require it, and conventional loans often require it below 20% equity.
What happens if a buyer assumes the seller’s exemption carries over?
A couple bought a $400,000 resale home in Williamson County in July. The seller was over 65, so the prior bill used to set their escrow reflected both the seller’s homestead and over-65 exemptions and the seller’s capped value.
They assumed the exemption came with the house and did not file. The next bill was calculated with no exemptions and at a higher appraised value, and their first escrow analysis showed a shortage on top of a higher monthly tax amount.
Their loan officer helped them file the homestead application before the April 30 deadline for the following tax year, paid part of the shortage in one lump sum, and asked the servicer to rerun the analysis once the exemption was posted.
A Texas buyer whose escrow was set from the seller’s exempt tax bill should file their own homestead exemption by April 30 and expect the first escrow analysis to reflect the change, because exemptions do not transfer to a new owner.
Scenario attributed to Charlie Cooper, President, Austin Capital Mortgage. Illustrative example; details are fictionalized. Approval is subject to underwriting review and program eligibility.
Your Next Steps
- Look up your home on your county appraisal district website and confirm which exemptions are listed under your name.
- If you closed this year or last year, file your residence homestead application now, before April 30.
- Ask your lender or servicer what tax figure your escrow is based on and whether it includes the seller’s exemptions.
- Put your next escrow analysis date on your calendar and review it line by line when it arrives.
- If you are 65 or older or disabled, file for the additional exemption and the school tax ceiling as well.
- Before you buy, ask for a payment estimate that uses taxes without the seller’s exemptions.
Want a payment estimate built on realistic Texas tax numbers? A loan officer can walk through your full scenario.
See What Your Full Texas Payment Would Look Like
Austin Capital Mortgage has helped Texas homeowners since 1996, with access to 100+ lenders and a dedicated loan officer from start to finish. We’ll show you the rate and a tax and escrow estimate built for your address, not the seller’s.
Rates and payments vary. Approval is subject to underwriting review and program eligibility. Austin Capital Mortgage is a DBA of Aspire Home Loans, LLC, NMLS #1955132. Equal Housing Lender.
