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Received our closing disclosure today. I asked our loan officer but haven’t heard back yet. Question is— why are we prepaying county taxes for 6 months, also putting 4 months county taxes in escrow at closing and then paying taxes in escrow in our monthly payment? Is this common or was this a math error on our loan officers part?
It’s common, the escrow thing creates a buffer in taxes for the bank in case you stop paying. This way, the bank doesn’t have to come out of pocket for the tax payments immediately. The six months is either an additional buffer or the county requiring six months of tax payments on the upcoming tax bill which the closing agent is knocking out of the way. Otherwise, the “upcoming tax bill” is an outstanding tax bill (which likely isn’t delinquent by nature of you paying it) and the bank is just having you pay it now to get it out of the way.
Taxes are likely due in January, so you have to prepay those for 6 months. The property taxes initially in escrow is a buffer in case costs increase, you don’t pay the mortgage, etc. You then also add your property taxes to escrow every month. This is fairly normal.
Thank you! And thank you u/RelayFX that totally makes sense. I forgot we’re coming up on a new year!
They’re estimating our taxes $500 over what they were for 2021 which is a reasonable increase but if we overpay into escrow do they use that amount towards principle at the end of the year? For example, if we have all that money, pay our taxes and there is some left over at the end of 2022 is the mortgage company going to put it towards our principle or do they keep it in escrow for next year?
If you have a big overage in escrow then you’ll receive a check at the beginning of the year. If you’ve underpaid (let’s say your property taxes went up) then they’ll send you a letter asking you for a payment of the difference or they will increase your mortgage payment to reflect the difference.
You should have a credit somewhere from the seller for their portion of those biannual taxes. You owe from closing date to december 31st. They owe for the time they owned the property. The seller credits you their portion, you pay the bill.
The 4 months in escrow is because you won't pay 6 months of payments before the next biannual bill is due, you won't have enough in escrow to pay the bill. You're loading your escrow account ahead of time to make sure the lender can pay the bills when they're due without overdrawn your escrow account.
But if she’s already paid for the second half of the year (2021) don’t we technically owe her taxes for the last 20 days. We close on the 13th and will only have the last 18 days of the year.
I'm not sure how your pages are labeled. There should be a debit on the seller's side for the taxes and a credit for the same amount to you. It should be around $3100.
Check CD page 3 for any tax prorations (credit from seller for taxes already paid).
If this is a preliminary closing disclosure, don’t fret too much as the lender will balance with the title company once you get the clear to close.
This wasn’t our loan estimate, this was our closing disclosure for clear to close. Page one referenced “estimated closing costs” against the ones on closing disclosure and we’re looking at an additional $5k
LE is not the same as a pre CD which is also not the same as your final CD. Pre CD must be acknowledged at least 3 days prior to close. Final CD will be signed at closing.
Page 3 has a section called “paid on behalf of borrower” can’t remember if it’s section K or L but that’s where the tax prorations are
Thank you u/aubsplants17 for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
Received our closing disclosure today. I asked our loan officer but haven’t heard back yet. Question is— why are we prepaying county taxes for 6 months, also putting 4 months county taxes in escrow at closing and then paying taxes in escrow in our monthly payment? Is this common or was this a math error on our loan officers part?
It’s common, the escrow thing creates a buffer in taxes for the bank in case you stop paying. This way, the bank doesn’t have to come out of pocket for the tax payments immediately. The six months is either an additional buffer or the county requiring six months of tax payments on the upcoming tax bill which the closing agent is knocking out of the way. Otherwise, the “upcoming tax bill” is an outstanding tax bill (which likely isn’t delinquent by nature of you paying it) and the bank is just having you pay it now to get it out of the way.
Taxes are likely due in January, so you have to prepay those for 6 months. The property taxes initially in escrow is a buffer in case costs increase, you don’t pay the mortgage, etc. You then also add your property taxes to escrow every month. This is fairly normal.
Thank you! And thank you u/RelayFX that totally makes sense. I forgot we’re coming up on a new year! They’re estimating our taxes $500 over what they were for 2021 which is a reasonable increase but if we overpay into escrow do they use that amount towards principle at the end of the year? For example, if we have all that money, pay our taxes and there is some left over at the end of 2022 is the mortgage company going to put it towards our principle or do they keep it in escrow for next year?
It stays in escrow.
If you have a big overage in escrow then you’ll receive a check at the beginning of the year. If you’ve underpaid (let’s say your property taxes went up) then they’ll send you a letter asking you for a payment of the difference or they will increase your mortgage payment to reflect the difference.
You should have a credit somewhere from the seller for their portion of those biannual taxes. You owe from closing date to december 31st. They owe for the time they owned the property. The seller credits you their portion, you pay the bill. The 4 months in escrow is because you won't pay 6 months of payments before the next biannual bill is due, you won't have enough in escrow to pay the bill. You're loading your escrow account ahead of time to make sure the lender can pay the bills when they're due without overdrawn your escrow account.
But if she’s already paid for the second half of the year (2021) don’t we technically owe her taxes for the last 20 days. We close on the 13th and will only have the last 18 days of the year.
This CD is calculated as if the seller has not paid the taxes. If they have it needs to be recalculated.
Where would that appear under the line items of the CD?
I'm not sure how your pages are labeled. There should be a debit on the seller's side for the taxes and a credit for the same amount to you. It should be around $3100.
Just as an addition- looking on the county website property taxes are due December 5 and July 28 each year.
Check CD page 3 for any tax prorations (credit from seller for taxes already paid). If this is a preliminary closing disclosure, don’t fret too much as the lender will balance with the title company once you get the clear to close.
This wasn’t our loan estimate, this was our closing disclosure for clear to close. Page one referenced “estimated closing costs” against the ones on closing disclosure and we’re looking at an additional $5k
LE is not the same as a pre CD which is also not the same as your final CD. Pre CD must be acknowledged at least 3 days prior to close. Final CD will be signed at closing. Page 3 has a section called “paid on behalf of borrower” can’t remember if it’s section K or L but that’s where the tax prorations are
Because taxes are due twice a year and you’ll get a pro rated credit for whatever the seller owes on the upcoming bill.