Depending upon where your home search takes you in California, you will likely hear the term “Mello-Roos.” Just what is Mello-Roos? In a nutshell, Mello-Roos is a special tax that homeowners pay in certain communities to fund bonds that support the infrastructure of that community.
A Closer Look at Mello-Roos
In 1982, The Mello-Roos Community Facilities District Act was enacted as an alternative financing plan for municipal improvements and services. Named for California State Senator Henry Mello and Assemblyman Mike Ross, the Act was passed as a response to Proposition 13 which limited the ability of local governments to finance new projects. Mello-Roos allows any school district, city, county, or joint powers of authority to establish what is known as a Mello-Roos Community Facilities District.
These districts supplement services such as police, fire, ambulance, infrastructure, libraries, museums, cultural facilities, parks, schools, and sewer system through bonds; which are paid for by a special tax assessed to homeowners in those districts. So, is Mello-Roos good, or is it bad?
Pros and Cons of Buying a Home in a Mello-Roos District
Mello-Roos is often misunderstood by home buyers because the tax amounts vary from district to district and from home to home. However, you can look up the actual Mello-Roos or CFD for each home in advance of a purchase. For example, in Orange County, you can go to OC Assessor website and see the exact amount, if any, a particular property will be charged under the regulations.
Many California residents feel passionately about the Mello-Roos Act, whether they support it or fundamentally disagree with it. Those who are against Mello-Roos bonds typically cite the following arguments:
- They believe the extra taxes can potentially limit the potential buyer pool.
- Mello-Roos payments can often add between .25-.75% of the housing price in annual taxes.
- Most newer homes in these districts also include homeowner’s association fees, which further increases the monthly housing cost.
- These payments, though treated as a property tax, are not deductible on federal returns.
But despite some of the passionate arguments against Mello-Roos, there are distinct advantages to purchasing a home in one of these districts, including:
- Mello-Roos communities typically have newer homes and newer amenities.
- Infrastructure and key community resources can be well-maintained and funded into the future, which can positively impact property values.
- Housing inventory is created when new locations are built out.
- Mello-Roos communities often have lower crime rates and more appealing school districts than non Mello-Roos communities.
- Fees can only be increased a maximum of 2% per year.
- The Mello Roos tax is a defined amount based on the property and is not calculated by the property value.
- Over time, the Mello-Roos bonds get paid off and go away
Understanding how Mello-Roos and other factors will affect your home purchase is critical to making an informed decision. That is why it is important to work closely with a full-time, experienced real estate professional who can help you understand all aspects of buying a home, whether in a Mello-Roos district or not.
If you are looking to buy or sell a home in Irvine, California, and you want more information about Mello-Roos districts or the home buying process in general, contact Inspira Group today. Our team is experienced in buying and selling homes and we can help you understand the home buying and/or the home selling process. We look forward to hearing from you soon!