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Is escrow typically 12 months of projected taxes or Less? I invite this might be best suited for my lo but the adverts he gives seem confusibg and he will not be in the office until Thursday due to weather damage.
we are trying to see how much to budget for closing costs so there are no surprises and we are left with 0 money to even move lol....it would suck to have to come up with $8200 (our taxes) at the last minute and having to take it out of reserves or live with no furniture for a year.
...it would suck to have to come up with $8200 (our taxes) at the last minute
Assuming the owner has fully paid their taxes when due then you'll have to reimburse them
for the PORTION of that from date of settlement to the NEXT due date.
If they haven't paid their taxes when due then you'll have to pay that SAME AMOUNT to the State.
It appears that you are asking the question specifically about how much is charged at closing of a property for taxes, rather than how much is escrowed throughout the year. Those are two very different questions.
Throughout the year, the escrow account has to keep enough that at the lowest balance of the year, they have no more than 1/6th of your annual taxes/insurance expenses. Every year, they rebalance in order to meet this number as exactly as possible. They don't have to keep that 1/6th reserve at all, but most of them do, they just can't exceed that as a minimum for the year.
But when it comes to closing, it is impossible for someone unfamiliar with New York to answer that for you, and here is why. Some areas pay taxes in advance, in which case, you would owe the seller for previously paid taxes, as well as having to set up an escrow account. In other places, people pay taxes immediately in arrears, meaning in December, you pay for June-December, in which case, the seller would owe you for some prorated taxes, say from June 1st through October 30th if you closed today, since in December, you will have to pay the full amount. Finally, in still other places (like where I live), you pay 6 months in arrears, meaning that in December, you pay for the prior December through June. So the seller might owe you a fair amount in property taxes at closing time (because in December, you will pay taxes for a 6 month period when you didn't own the house at all, and then next June, you will pay taxes again for 2 months you did own it, and 4 months you didn't, so they have to give you all that money up front). So how much your taxes influence your closing costs depends HEAVILY on how your area pays taxes.
Regardless, you still have to come up with the same money. The question is whether you pay it now at closing to have a larger escrow account, or if not, and at tax time your escrow account is short, and they either ask for the difference to be paid at that time, or raise your payment next year in order to make up the difference.
Assuming the owner has fully paid their taxes when due then you'll have to reimburse them
for the PORTION of that from date of settlement to the NEXT due date.
If they haven't paid their taxes when due then you'll have to pay that SAME AMOUNT to the State.
MrRational, while this is completely true for some areas of the country (those who pay taxes in advance), it is completely false for most of the country. Are you sure it is true for NY?
Thank you for the answers.... This is a REO Fannie Mae property...and taxes are upto date, we called and verified with the village and can check it online.
We also spoke with our LO and he told us most of the time it depends on down payment and credit score. They see how much of a risk it is... but that they typically DO NOT require the entire year to be put into the escrow account. He lost power so we didn't think he would be able to answer our question.
And the verbal closing "estimates" he gave us DID include the average taxes we would need to put for closing. We thought that we would need to pay "12-14k" for closing PLUS 8k+ for taxes. Pheeeew... this makes things easier.
I bought a house in NY about 5 years ago and we had to have 12 months worth of taxes at closing. This was in a town that required taxes be paid annually in advance. A portion of the amount went back to the seller to reinburse them for taxes that they already paid. The other portion went into escrow.
For example:
Assume that taxes are due on 12/31 (assume that the taxes are $6,000 per year)
Sale is occuring on 9/30
The seller has paid taxes for all of the current year, but only lived in the house for 9 months. I will owe the seller 3/12 of the total taxes for the year (or $1,500)
The mortgage holder will want me to have $6,000 in escrow when we get to 12/31. There are 2 options. They can either charge me 6,000 / 3 (or 2,000) per month for each of the next 3 monhs. Or they can charge me 6,000 / 12 (or 500) per month for the next 3 months with the other $4,500 required at closing. It's not realistic to collect 2,000 per month, so the only real option is to put $4,500 into escro at closing
Add up the portion going back to the seller with the portion going into escrow and you will always end up with 1 full years worth of taxes.
Keep in mind, that this is in addition to homeowners insurance that will be kept in escrow as well as maybe 1-2 months worth of taxes that they may require.
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