When searching for a new home, you will sometimes see that a property has a Mello-Roos tax. In simple terms, it is an additional property tax. We know you aren’t here for the short answer though so let’s expand on what this means for you.
Mello-Roos is unique to California. In 1982, Assemblymen Mike Roos and Henry Mello spearheaded the Mello-Roos Act, formally known as the Community Facilities District Act, as a financing tool for communities to raise funds for public facilities like schools, parks, and roads. This was a workaround for Proposition 13, a 1978 amendment to the California Constitution that limits property taxes to 1% of assessed value and caps the rate of increase on the assessment to 2% per year, and ultimately passed it into law in 1983.
Prior to the passage of this bill, communities were limited to using general obligation bonds to raise funds. This new financing tool gave communities the option to raise additional funds in order to improve their districts as they desired.
Not all properties have a Mello-Roos tax. Mello-Roos taxes tend to be more prevalent on newer properties where additional infrastructure was needed to be constructed. The amount of the Mello-Roos varies depending on the size and value of the property, along with the specific infrastructure that was needed for the community. They typically last 20 to 25 years but they can be extended up to 40 years. There are restrictions in place so they can not increase by more than 2% per year and may not exceed the maximum amount specified when the district was created.
There are pros and cons to Mello-Roos taxes. They bolster new housing construction at a lower cost to the eventual buyers but they also add a tax burden on homes in Mello-Roos districts and could be a deterrent when looking to sell the home. Regardless of how you feel about them, they are a part of California Real Estate and you should be cognizant of their presence.
If you have questions about Mello-Roos taxes and how they affect your ability to qualify for a home, give us a call. At Bluefire Mortgage Group, we are here to answer any questions you may have about home financing. Feel free to contact us at (760)930-0569 and one of our loan advisors will be happy to assist you.