One of the most common questions we get asked is "What is the property tax credit and how is it calculated?" 

Property taxes are paid in arrears, meaning the property taxes for this year are paid to the county next year.  If you bought a house on July 15, 2009, then the property taxes for all of 2009 will be due in 2010.  But wait!  You only lived in the house from July 15, 2009 until the end of the year - why should you have to pay the taxes for all of 2009?  Well, you don't.  That's where the property tax credit comes in.  

At the closing, the seller will pay you one day's worth of property taxes from January 1 until the last day that he owned it - July 14.  That's 6 1/2 months of taxes that get moved from the seller's account into the buyer's account.  

It doesn't matter when you close on your house - you will only pay property taxes for the time you owned it.  As the year goes on, the property tax credit gets larger.  For example, if you close on a house on January 2, you will only get 1 day of taxes from the seller.  If you close on December 31, you will get an entire year of taxes from the seller (less the one day you lived in it - December 31).  This is important to know because the most money you are allowed to get back at closing is the amount of money you paid as an earnest money deposit.  If you paid only $1,000 in earnest money, but you are owed $3,000 for the property tax credit, the most you could get back as cash at the closing is $1,000.  The remaining $2,000 would be taken off the closing costs you owe.  However, if the seller is paying all your closing costs for you, then the seller would get to keep that $2,000.  To take full advantage of the property tax credit, you would need to ask for $2,000 less in seller-paid closing costs.  Just one more reason why you should always use a mortgage broker who knows what they're doing before signing a sales contract for a house.