MW Beware of this tax shock when buying a newly built home - one first-time homeowner's monthly payment jumped $1,000

By Aarthi Swaminathan

A new lawsuit highlights the potential risks involved in buying newly constructed homes

Buyers of newly built homes are sometimes shocked to see their property-tax bills skyrocket after the first year.

Americans' property-tax bills have risen sharply in recent years. But the newest cohort of homeowners - particularly those who bought newly constructed homes - may be facing the biggest payment shocks of all.

Some newbie home buyers may incorrectly assume that their first year's property-tax bill will roughly match those in subsequent years. More seasoned homeowners expect their property taxes to increase after the first year, after the property's assessed value is updated to match the recent sale price.

Tax-bill shocks experienced by buyers of newly built homes are at the center of a class-action lawsuit filed recently in the Middle District of Florida.

The lawsuit alleges that D.R. Horton $(DHI)$, a major home builder, has been presenting home buyers with deceptively low monthly payments by "deliberately including only a fraction of required property taxes in their payment calculations."

One family who bought a newly built home from D.R. Horton in Davenport, Fla., in January 2023 saw their monthly housing payments jump from $2,600 to $3,400 the following year because of a property-tax increase, according to the lawsuit. The home builder's mortgage-lending arm, DHI Mortgage, "chose to artificially suppress the [monthly] payment by failing to include the full amount of the taxes it knew would be due," the lawsuit alleged.

While tax bills have always jumped when homes change hands, today's housing-market conditions have exacerbated the situation.

D.R. Horton and DHI Mortgage told MarketWatch they strongly disagree with the claims made in the lawsuit, and intend to vigorously defend against them. "D.R. Horton and DHIM have been, and will continue to be, unwavering in our commitment towards transparency with our customers," a company spokesperson said.

Here's where the confusion can arise: When a builder constructs a new home, it typically sells the property before completing the home. The mortgage lender then determines initial monthly payments using an estimate of property taxes, usually based on the value of the undeveloped land. But after the value of the completed home is reassessed based on the land and the structure, as well as changes in local tax rates, the buyer's property taxes surge.

Buyers of existing homes also see a jump in property taxes after the first year, but to a lesser extent. When a home is sold, its value is reassessed at the new sale price, which typically translates to a bigger bill for new homeowners.

While tax bills have always jumped when homes change hands, today's housing-market conditions have exacerbated the situation.

A sharp increase in home-price growth due to pent-up demand and a lack of supply has raised property taxes across the country. Meanwhile, as home builders flood housing markets in the Sun Belt with new homes, more buyers have looked into purchasing them. Builders have also amped up marketing and drummed up discounts to make newly built homes more attractive.

In August, the latest month for which data were available, new-home sales jumped 21% from the previous month, according to Census Bureau data.

But as home buyers warm to the idea of buying new homes, they should understand the potential risks - primarily, the tax-bill shock.

An alleged 45% jump in monthly mortgage payments

After renting for years, Frankie Santiago and his wife decided to buy a home.

Santiago, a 35-year-old insurance claims adjuster and a plaintiff in the lawsuit against D.R. Horton, wanted to lower his housing costs, according to the filing. After having three kids under 5, his wife had to stop working full time to care for the youngest one. Their two-bedroom Miami apartment, at $2,700 a month, was becoming too expensive for the family. He also wanted to find better schools for the kids.

He found a neighborhood outside of Orlando, Fla., with a school that would meet his youngest child's developmental-disability needs. He visited the area and liked it, so he started looking for both existing and newly built homes in the area.

He contacted D.R. Horton, one of the biggest home builders in America, after he saw an online ad targeting first-time home buyers, the filing said. When the D.R. Horton sales representative called him, he said he wanted to buy a three-bedroom home with a monthly payment between $2,200 and $2,400 - not the $2,700 he was paying in Miami, which represented about 42% of his monthly income.

He was told he would receive financial incentives, such as $10,000 in "seller credits," that would help with the cost of buying the house, according to the lawsuit. The rep also allegedly told Santiago that he could expect a total monthly payment of about $2,100 for the new home, lower than payments for the other homes he was considering.

But that figure was only an estimate - and subject to a big change.

After Santiago agreed to the purchase, he took on a new Federal Housing Administration-backed mortgage, a loan typically used by first-time home buyers. DHI Mortgage estimated the total monthly payment to be $2,230 at first, later updating it to $2,164 on the closing disclosure, a federal form that provides the final details of the mortgage loan, the lawsuit said. This form estimated his property taxes to be about $613 per year - one-ninth of the amount it should have been, according to the lawsuit.

Santiago closed on a newly built D.R. Horton home, for a sale price of $302,000, in March 2024.

Nine months later, Santiago's loan servicer told him that his escrow account had a negative balance of about $4,400 due to an unpaid property-tax bill of $5,700, the lawsuit said.

That meant his monthly mortgage payment had jumped by nearly $1,000 in nine months, from about $2,160 to $3,140 - 45% more than what he was initially told he would be paying, according to the suit. Homeowners who buy existing homes typically don't face one-year property-tax increases this large.

"DHI Mortgage knew that this was the case, but it chose to artificially suppress the payment by failing to include the full amount of the taxes it knew would be due," the lawsuit said.

Santiago's monthly housing payments jumped from $2,160 to $3,140 in one year, which blew way past his budget for the newly built home he had bought the year before.

The way DHI Mortgage calculated the estimated payments "is highly problematic," Jennifer Wagner, a senior attorney at the National Consumer Law Center who served on the plaintiffs' legal team, told MarketWatch.

The company failed to include the full amount of the property taxes that it knew would come due, Wagner said, and therefore "preyed on people's faith in the American dream of homeownership to lure them into unaffordable, deceptive deals."

Had Santiago known that his initial property-tax bill was misleadingly low due to the home being built on "unimproved land," he would have declined to purchase the house or at least paid less for it, according to the lawsuit.

Home buyers are usually warned about tax shocks, industry veterans say

It's unusual to see a lawsuit stem from such a year-over-year tax increase, industry veterans told MarketWatch.

That's because mortgage officers typically explain to homeowners how tax payments change over time based on the property's fully assessed value, said Mike Steele, a mortgage-loan officer in southwest Florida. The lawsuit's discovery process will reveal whether D.R. Horton engaged in deception or buyers simply failed to understand the terms, he added.

Real-estate agents also flag this potential tax-bill surprise to prospective home buyers, Rod D'Entremont, a Naples, Fla.-based real-estate agent with Re/Max Hallmark Realty, told MarketWatch. He said he usually tells his buyers to expect a bigger tax bill in year two and beyond, after the home's value is reassessed.

Hundreds of miles away in Illinois, however, Alonzo Massey said he experienced the same payment shock with a different home builder.

Massey, who works in auto sales, moved into a newly built 2,400-square-foot home in Antioch, Ill., in December 2022. Buyer demand at the time was strong and he struggled to find a home to purchase, making unsuccessful offers on 12 houses. So when the builder, Ryan Homes $(NVR)$, put the last home in a new development on the market, he pulled the trigger, paying about $432,000 for the home.

The taxes soon went from manageable to out of control, Massey said. In the first year, his property taxes were about $6,800. In the second year, after the home's value was reassessed, taxes jumped to $16,000 a year, according to Massey - pushing up his monthly payments from $3,200 to $5,600. After a year, he decided to sell the property and rent another in the same area.

Ryan Homes declined to comment on Massey's experience.

"Before I bought the home, I looked up surrounding homes to see what their taxes were," Massey told MarketWatch. "But what I didn't know was that when they quote you [the estimate], they are only using the land value - and it's not based on when the house is finished."

-Aarthi Swaminathan

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October 24, 2025 08:00 ET (12:00 GMT)

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