I'm Bond Peter Njoku, a mortgage loan officer based in Garland, and the question I get most often from DFW buyers who are under contract in October or November is some version of: "I keep seeing a tax credit on my closing disclosure — what is it, and does it mean I won't have to pay taxes?" The short answer is that the credit is real money from the seller, but it does not eliminate your tax obligation going forward. Here is the full explanation, with actual numbers for DFW counties.
Why does Texas prorate property taxes at closing?
Texas taxes real property in arrears for the full calendar year. The county bills the owner of record on January 1, but the bill does not arrive until October or November and is not due until January 31 of the following year. When a property changes hands mid-year, the seller has owned it for part of the year but has not yet paid any tax for that year. To settle that obligation cleanly, the title company calculates the seller's days of ownership and credits the buyer for that amount at closing. The buyer then pays the full annual bill when it arrives, and the credit makes them whole for the seller's portion.
Texas law also attaches the tax lien to the property on January 1 each year. That means the lien follows the property to the new owner, which is another reason the proration credit matters: without it, the buyer would owe the tax for a period they did not own the home.
How the math works
The formula is straightforward:
Annual tax estimate ÷ 365 = daily rate × seller's days of ownership = proration credit
For an October 31 closing, the seller owns the property from January 1 through October 30 — that is 303 days. Here is what that credit and your initial escrow reserve look like on a $350,000 home by DFW county, using each county's approximate effective combined tax rate:
| County | Rate (approx.) | Annual tax | Daily rate | Seller credit (303 days) | 3-mo escrow reserve |
|---|---|---|---|---|---|
| Collin | 1.5% | $5,250 | $14.38 | $4,358 | $1,312 |
| Denton | 1.8% | $6,300 | $17.26 | $5,230 | $1,575 |
| Rockwall | 1.8% | $6,300 | $17.26 | $5,230 | $1,575 |
| Kaufman | 1.9% | $6,650 | $18.22 | $5,521 | $1,663 |
| Dallas | 2.0% | $7,000 | $19.18 | $5,811 | $1,750 |
| Tarrant | 2.2% | $7,700 | $21.10 | $6,393 | $1,925 |
Rates shown are approximate effective combined rates (city, county, school district) and vary by specific location within each county. Your title company will use the appraised value and actual applicable levies for your property.
What the title company actually uses — and why Q4 closings are different
The figure the title company plugs into the proration formula depends on when in the year you close:
| Closing window | Data source for proration |
|---|---|
| January 1 – March 31 | Prior year's final certified tax bill |
| April 1 – September 30 | Current CAD appraised value × prior year tax rates |
| October 1 onward | Actual 2026 tax bill (bills mail starting Oct 1) |
Most DFW counties release tax bills between October 1 and October 15. A closing on October 31, November 15, or any date in December 2026 uses the real bill rather than an estimate. That is an advantage: you and the seller both know the exact number before you sign. There is no post-closing adjustment or dispute about whether the estimate was reasonable.
The lender side nobody explains: credit versus reserves
Every explanation of tax proration I have read — including most realtor blogs — stops at the seller credit. What they leave out is that you will also see a charge on the same closing disclosure for your initial escrow payment. These are opposite signs on the same form:
- Section H (Prepaids) — Seller proration credit: money flowing to you. This partially offsets your down payment and closing costs. It is a genuine reduction in your out-of-pocket cash to close.
- Section G (Initial Escrow Payment at Closing) — Tax reserves: money flowing out. Your lender requires two to three months of tax and insurance reserves to seed the escrow account. This is a charge on top of your other closing costs.
Let me net those numbers for a Dallas County example — a $350,000 home, October 31 closing, 2.0% effective rate:
- Seller proration credit: +$5,811
- Initial escrow tax reserve (3 months): −$1,750
- Net effect on your cash to close: +$4,061
That $4,061 is real money that reduces what you wire to the title company at closing. It does not eliminate your future tax obligation — you will pay the full $7,000 tax bill by January 31, 2027 through your escrow account — but it meaningfully reduces the day-of-closing cash requirement, which is why Q4 is one of the more favorable times of year to close in DFW.
Texas tax calendar 2026–2027: what happens after you close
Here is the timeline every DFW buyer who closes in Q4 2026 should have in mind:
- October 1–15, 2026: Dallas, Collin, Denton, Tarrant, Rockwall, and Kaufman counties begin mailing 2026 property tax bills.
- October–December 2026: Your servicer receives the bill or looks it up electronically. Your escrow account should have enough reserves to cover the full payment.
- January 31, 2027: Tax payments are due regardless of when you received the bill. Your servicer pays from escrow.
- March–April 2027: Your servicer completes the annual escrow analysis and notifies you if the account is short or over.
- April 30, 2027: Deadline to file your homestead exemption for the 2027 tax year. Filing reduces next year's taxable value and eventually lowers your escrow payment.
The new-construction trap in Forney, Terrell, and other growth corridors
New-construction buyers in Kaufman County, Ellis County, and parts of Collin County face a specific risk. In the year you close, the county's January 1 tax roll often shows only the land value — because the home was not yet built on assessment day. Your first year's tax bill might be $1,400 based on an $80,000 land value. Your lender sets up your escrow accordingly.
The following January, the county reassesses the full improved value — $350,000 — and your tax bill jumps to roughly $6,650 at Kaufman's approximately 1.9% effective rate. Your escrow account is short by about $5,250. Your servicer sends you a shortage notice offering to spread the deficiency over 12 months, adding roughly $437 per month to your payment on top of the rate adjustment for the correct escrow going forward.
I tell every Forney and Terrell buyer I work with: ask me to escrow at the full anticipated improved value from the start. The servicer may set up the initial escrow based on the land-only tax bill — that is standard — but I can walk you through how to request a manual escrow recalculation before your first shortage notice arrives.
How homestead exemptions interact with proration
Filing a homestead exemption reduces your taxable value, which lowers your tax bill and therefore lowers your monthly escrow going forward. The $140,000 school-district residence homestead exemption that Texas enacted in 2023 applies to the school-district portion of your levy, which is the largest single component in most DFW counties.
What homestead exemptions do not do is change the proration at closing. The proration is calculated on the current year's appraised value with whatever levies applied on January 1 of that year. If the seller had a homestead exemption in place, the proration uses their lower effective rate. If you close and file your exemption for the following year, your future escrow payments go down — but the closing-day math uses the existing assessed value and levy.
File your homestead exemption with the county appraisal district by April 30 of the year after you close. You can get detailed guidance in my Texas homestead exemption guide.
Loan program differences: who must escrow?
Not every loan program handles escrow the same way:
- FHA: Escrow is required for taxes and insurance on all FHA loans. No waiver option.
- USDA: Escrow is required for taxes and insurance on all USDA loans.
- VA: VA does not technically require escrow, but virtually all servicers require it in practice for VA loans.
- Conventional: Escrow waiver is available when your loan-to-value ratio is at or below 80% (20% equity). Some lenders charge a small fee for the waiver. At less than 20% down, escrow is required.
The practical effect is that most DFW buyers escrow — both because many are putting less than 20% down and because the programs they use require it. The escrow reserve amount at closing is the same whether it is required or voluntary; it is the cushion RESPA allows lenders to hold.
A Rockwall buyer closing October 31
Last week I walked a client through exactly this calculation for a $350,000 home in Rockwall. They had been confused because their closing disclosure showed a seller credit of $5,230 but they also owed $1,575 in escrow reserves. They thought the two offset each other more than they do.
I walked them through it this way: the $5,230 credit comes from the seller and reduces the cash they owe at the table — think of it as money in. The $1,575 escrow reserve is a charge they owe to seed their escrow account — money out, but money that stays in their name and pays their future tax bill. Net out-of-pocket benefit: $3,655. And because they were closing after October 1 when the actual tax bill had dropped, the title company used the real 2026 levy, not an estimate, so there would be no post-closing adjustment.
They also asked about the homestead exemption, which I explained they should file by April 30, 2027, to see the savings flow into their escrow analysis the following spring. I covered that in more detail in my escrow shortage guide and you can run your own numbers on my mortgage calculators page.
What to bring to your lender before closing
To make sure the proration is calculated correctly and your escrow is set up right from the start:
- Confirm the property's current appraised value with the county appraisal district — especially on new construction, where the land-only value is often what the CAD shows online.
- Ask your title company which data source they are using for the proration. If you are closing after October 1, confirm they have the actual 2026 bill.
- If you are buying new construction, ask your loan officer to underwrite the escrow at the full improved value rather than the land-only assessment.
- Mark your calendar: file your homestead exemption by April 30, 2027 if you close in late 2026.
I work with buyers closing in Garland, Rockwall, Forney, Mesquite, and every DFW county where these rates apply. If you want to see the exact proration estimate for your property, call or text me at 469-545-7180 before you get to the closing table.
Frequently Asked Questions
Who pays property taxes at closing in Texas — buyer or seller?
I'm Bond Peter Njoku (NMLS #2670329) and the answer is both, but through a credit rather than two separate payments. Texas taxes are billed in arrears for the full calendar year, so at closing the seller owes the tax from January 1 through the day before closing — that is, the days they owned the property. Because the actual bill has not yet been paid, the title company calculates the number of seller-owned days, multiplies by the daily tax rate, and credits that amount to the buyer on the closing disclosure. The buyer then pays the full tax bill when it comes due — January 31 of the following year — and the seller's credit offsets the portion the buyer collected for them. The seller does not cut a separate check to the county; the credit settles it at the closing table. Call or text me at 469-545-7180 if you want me to run the credit estimate for your specific property.
What figure does the title company use for the tax proration if the final bill is not out yet?
I'm Bond Peter Njoku (NMLS #2670329) and it depends on when you close. For closings before April 1, the title company uses the prior year's final certified tax bill as the best available estimate. For closings between April 1 and roughly October 1, they use the current year's Central Appraisal District appraised value multiplied by the prior year's tax rates — a reasonable estimate, though it can differ from the actual bill. For closings after the bills drop — which in most DFW counties means October 1 through October 15 — the title company uses the actual 2026 tax bill, which is the most accurate figure of the year. If you are closing in October through December 2026, your proration will be based on the real number, not an estimate. That is actually an advantage for a buyer who wants certainty. Call or text me at 469-545-7180 if you have questions about your specific closing window.
I received a tax proration credit. Does that mean I do not have to escrow taxes?
I'm Bond Peter Njoku (NMLS #2670329) and no — the proration credit and your escrow reserve requirement are two different items on the closing disclosure, and they move in opposite directions. The proration credit is money coming to you (a credit on page two under Prepaids, from the seller). The initial escrow payment at closing is money going out (a charge to you), because your lender needs two to three months of tax reserves in the escrow account to build a cushion before your first tax bill. On a $350,000 Rockwall County home closing October 31, 2026, you might receive a $5,230 seller credit for their 303 days and simultaneously owe $1,575 in initial escrow reserves — a net benefit of about $3,655, but both lines appear on the same disclosure. FHA and USDA always require escrow. Conventional loans can waive escrow if your equity is at or above 20%, but many buyers keep it. Call or text me at 469-545-7180 and I will show you where each item sits on your estimated closing disclosure.
We are buying new construction in Forney. Is the tax proration different?
I'm Bond Peter Njoku (NMLS #2670329) and yes, and this is the trap that catches the most DFW buyers by surprise. In the year you close on a new-construction home, the county typically assesses only the land value because the home was not on the rolls as an improved property on January 1. So your closing-year taxes are tiny — maybe $1,200 to $1,600 annually on a $80,000–$100,000 land value. Your first full year of ownership, the county reassesses at the full improved value, and your taxes jump to roughly $6,000–$8,000 or more on a $350,000 home at Kaufman County's approximately 1.9% effective rate. That means your escrow account will be dramatically short in year two, and your servicer will send you an escrow shortage notice. I tell every new-construction buyer I work with: escrow at the full anticipated improved value from the start, even if the first year's bill is lower, so you avoid the payment shock. Call or text me at 469-545-7180 before you finalize your loan on a new build in Forney, Terrell, or anywhere else in Kaufman County.
Closing in Q4 2026? Let me show you exactly what the tax credit and escrow will do to your cash to close.
I'm Bond Peter Njoku (NMLS #2670329). I close loans in Rockwall, Garland, Forney, Mesquite and across DFW, and tax proration is one of the numbers buyers most often misread on their closing disclosure. Call or text me at 469-545-7180, message me on WhatsApp, or start your pre-approval online.