Mortgage Guide for Pennsylvania

Transfer Taxes Add Substantial Closing Costs

Pennsylvania’s 1% state realty transfer tax is among the highest state-level transfer taxes in the country. The tax is typically split equally between buyer and seller at 0.5% each, though this division is negotiable. On a $275,000 home, the state transfer tax alone totals $2,750, with each party paying approximately $1,375. However, the state tax is only the starting point. Most Pennsylvania municipalities impose an additional local transfer tax of 0.5% to 1.0%, and school districts may levy a separate tax as well. In Philadelphia, the combined state and local realty transfer tax reaches approximately 4.278%, meaning a $275,000 purchase in the city would incur roughly $11,765 in transfer taxes alone. Pittsburgh’s combined rate of approximately 3% produces roughly $8,250 in transfer taxes on the same purchase price. These costs represent a significant addition to closing costs that buyers must plan for when estimating cash needed at settlement. For a detailed breakdown of how transfer-related fees affect your closing statement, see our guide on transfer taxes and recording fees.

Property Taxes Are Above Average and Highly Variable

Pennsylvania’s effective property tax rate of approximately 1.58% is well above the national median of approximately 1.1% . On a $275,000 home, that translates to roughly $4,345 per year, or $362 per month added to your mortgage payment through escrow. When lenders calculate your debt-to-income ratio, this property tax burden counts against your qualifying income, which means Pennsylvania borrowers often qualify for less house than borrowers in lower-tax states at equivalent income levels. Property tax rates in Pennsylvania vary enormously by county, municipality, and school district. Some school districts in the Philadelphia suburbs have effective rates exceeding 2.5%, while parts of central and western Pennsylvania may have rates closer to 1.0%. Two homes with identical purchase prices in neighboring school districts can produce monthly escrow differences of $150 or more, directly affecting DTI calculations and loan qualification.

No Statewide Reassessment Standard Creates Unpredictable Tax Burdens

Pennsylvania is one of the few states with no mandatory schedule for countywide property reassessment. Some counties have not conducted a reassessment in decades, meaning assessed values can diverge dramatically from actual market values. This creates two distinct problems for mortgage borrowers. First, in counties with outdated assessments, millage rates are often set very high to compensate for artificially low assessed values, making the effective tax rate confusing to estimate from public records alone. Second, when a county does reassess, homeowners can experience sudden, large increases in their property tax bills. Lenders base escrow calculations on the most recent tax bill, and a reassessment in the first few years of ownership can increase the monthly escrow by hundreds of dollars. Buyers should research whether their target county has recently reassessed or is likely to reassess in the near future. Pennsylvania’s homestead exclusion program, which reduces the assessed value of a primary residence, provides some relief but varies in amount by school district.

Philadelphia: A Market Within a Market

Philadelphia County operates under a distinct set of rules that significantly affect mortgage costs. The combined realty transfer tax of approximately 4.278% is more than four times the base state rate and can add over $10,000 to a median-priced purchase. The city also uses a 10-year tax abatement program for new construction and significant renovations, which can temporarily reduce property tax bills to near zero on the improvement value. Buyers purchasing abated properties should understand that the abatement phases out over 10 years, with full taxes applying afterward. Lenders may or may not account for the post-abatement tax increase in their qualification analysis. Additionally, Philadelphia requires a Use and Occupancy certificate (U&O) for certain property transfers, adding an inspection and compliance step to the transaction that is not typical elsewhere in the state.

Conforming Loan Limits and High-Cost Counties

Most Pennsylvania counties use the baseline conforming loan limit set by FHFA. However, several counties in the Philadelphia and New York City metropolitan statistical areas carry elevated conforming and FHA limits . Pike County, in the northeast corner of the state, is part of the New York-Newark-Jersey City MSA and benefits from that area’s higher limits. Chester, Delaware, Montgomery, Bucks, and Philadelphia counties fall within the Philadelphia-Camden-Wilmington MSA, which may also carry elevated limits. For buyers in these counties, higher conforming limits expand access to conventional pricing on loans that would require jumbo financing in other parts of the state. Borrowers in the remaining 61 counties should plan around the baseline conforming limit for loan sizing.

Insurance Costs Are Below the National Average

Pennsylvania’s homeowners insurance rate of approximately 0.23% of home value is below the national average. On a $275,000 home, that translates to roughly $633 per year, or $53 per month. Pennsylvania is not considered a high-risk state for natural disasters, though buyers along the Delaware, Susquehanna, and Allegheny river systems or in other flood-prone areas should verify FEMA flood zone status. Properties in designated Special Flood Hazard Areas require separate flood insurance, which can add $500 to $3,000 or more annually depending on flood zone classification, elevation, and coverage amount.

PHFA Programs Reduce Upfront Costs

The Pennsylvania Housing Finance Agency (PHFA) administers several programs targeting first-time and qualifying repeat buyers. The agency’s flagship products include the HFA Preferred and Keystone Home Loan programs, which offer competitive interest rates combined with down payment and closing cost assistance of up to $10,000 as a forgivable second lien. PHFA also offers the Keystone Advantage Assistance Loan, which provides up to $6,000 as a no-interest second mortgage. Most programs require a minimum credit score of 660, income below county-specific limits, and completion of a homebuyer education course. Given Pennsylvania’s high transfer tax costs, these assistance programs can be particularly valuable in offsetting the additional cash needed at settlement.

What This Means for Your Monthly Payment

On a $275,000 Pennsylvania home with 10% down ($247,500 loan) at a 6.5% interest rate, estimated monthly costs break down as follows: principal and interest of approximately $1,565, property tax escrow of approximately $362, homeowners insurance of approximately $53, and PMI of approximately $103 (assuming 0.5% PMI rate). The total estimated monthly payment is approximately $2,083. The property tax component accounts for roughly 17% of the total payment, and transfer taxes at closing add $2,750 or more depending on municipality. In Philadelphia, the transfer tax burden at closing would be approximately $11,765 on the same purchase price, representing a substantially different cash-at-closing requirement. PMI rates vary by credit score, loan-to-value ratio, and insurer, so your actual cost may differ from this estimate. Using the affordability calculator with Pennsylvania defaults will give you a personalized estimate based on your income and debts.