Saturday, June 16, 2007

query: closing on home June 26, taxes due August 31, how much to I need in escrow account

If your first mortgage payment is due in August, which seems likely, you'll need a full 12 months in escrow to pay the taxes. Your lender also has the right to require up to two additional months for a cushion, so they may collect 14 months.


Anonymous said...

We are also in a similar situation. We live in Georgia, should we have to pay the entire 12 months into escrow, or does the seller have to pay 6 months worth of it since we are not taking ownership until the end of June?


Diane Cipa, The Closing Specialists® said...

The HUD-1 Settlement Statement should also show a proration of taxes on the front of the form. It's a separate part of the transaction, not part of the lender escrow.

Find out what the fiscal year is for the taxes. Most are calendar, but some are not. For instance, most school districts in PA have a fiscal year of July 1st thru June 30th.

Once you know what the fiscal year is then you can work out the prorations.

A very typical PA proration at this time of year shows that the seller has already paid local/county tax for 1-31-07 thru 12-31-07, thus the buyer would owe a credit to the seller for the closing date thru the end of the year. It's worked out on a daily rate - taxes divided by either 360 or 365 days. If we were closing today, the buyer would owe a credit to the seller for school tax thru 6-30-07, since that's the end of the school year.

It can be kind of confusing since the due dates for taxes are NOT the same as the fiscal year.

Let's assume your taxes all run on a calendar year, however, the taxes are paid in August. That means that the seller has not yet paid the 2007 taxes.

Your lender will collect the entire tax from you, including a cushion, if they desire.

The settlement agent will show a credit to you from the seller on the first page of the HUD-1 for taxes running 1/1/07 through the date of the closing.

Ask the settlement agent ahead of time for those figures so you have time to digest them.

Good question!