Most people when shopping for a home do not realize how Mello Roos impacts their monthly paymenmt. First of all the Mello Roos process is simply a bond that is most likely issued to the City that you are buying your new home in. There are a few other ways to structure the bonds too. In any case these bonds raise funds to pay for the building of the infrastructure of your neighborhood. Such as streets, street lighting, storm drains, sidewalks, parks & schools to support a specific community. When these bonds are issued it allows a developer to sell a home for a reduced amount which is great for the future home owner or is it?
First of all if you are paying $100 per month in Mello Roos tax that is the same as roughly $16,000 in buying power. The Mello Roos tax is still counted against you in terms of loan qualifying as you have to pay the tax every month with your monthly payment. So what has happened is the buyer might feel good about buying a home for $20,000 less than a near by home that does not have Mello Roos but that is not really the case as you are still paying the loan payment for the higher priced home.
Most of these bonds are being repaid at a 6.5% interest rate so ask yourself what is your rate and then you will know if you are really getting a good deal. Most people fixate on the actual sales price and not the per month cost. What would you rather buy a home for $400,000 with a $150 Mello Roos tax and a rate of 4.75% and an actual monthly payment of $2,236.59? Or a home with a sales price of 425,000 with the same payment? So ask yourself which is the better deal? The point here is this, do not get lost in the sales price as the monthly payment is the true cost you will feel.