Closing cost education (insurance, credit, loan)

[apirlrain]

Hi all

i just got off the phone with a local mtg broker.
I was educated on how Closing cost are done in the area!
I almost fell of my chair!

what i learnt. I don't know if this is done in other states, but not in the MA or NC.

first the usual title .5% and transfer fees 1-1.5%.
then:
must pay all one yr property tax Up front!!!! And you reimburse the seller for what they have paid.

so if i purchase in north allegheny on a 400k house i have pay 8000 in taxes!!! and in cranberry/bulter i have to pay 4000 up front! that is more than the total closing cost i pay for my 300k house in NC!!!

on a 400k home
for north allegheny 2000 + 6000 + 8000= 16,000 in closing cost??? that almost my downpayment????!!! yes??? am i wrong?
for butler= 2000 + 6000+ 4000= 12,000

then:
say the house i purchase was paying assessed value of 200k and i come in and buy it at 400k, the property "might" be reassessed and i have to pay difference ( i also read this on a thread somewhere)
she said you can appeal it, but how do you justify paying 400k for a 200k home ;p that is highway robbery!

hmmmm, i am leaning more and more towards bulter county. financially

sorry had to vent... on top of other issues....my house searching adventure has hit a reality wall! *sigh

[Copanut]

Welcome to Allegheny County. Not sure the info about the taxes is correct, normally they would be pro rated depending on when they were collected.

As to assessed value, the county assessment probably won't change, but the School District will come after you, especially North Allegheny. They contend if you paid 400K, you should be taxed at 400K. Hard to argue, but it honks you off when your neighbor is at 200K.

[BrianTH]

The escrowing of taxes is indeed a shocker if you weren't expecting it.

The reassessment issue is complex. The good news is that right now Allegheny County has a 2002 Base-Year system, which means the question is the right assessed value in 2002, not 2010. So if property values have gone up since 2002 in your neighborhood, paying significantly more than the assessed value doesn't necessarily mean anything.

Edit: Which doesn't mean the School District might not come after you, but you have a fighting chance given the way the system is supposed to work. Unedit.

The bad news is the 2002 Base-Year system has been held unconstitutional (under the PA constitution), so at some point we will get a reassessment. If property values have gone up a lot in your neighborhood since 2002 that might mean an increase in taxes, but again it is a complex issue because under PA law rates will automatically be adjusted down to keep total revenues the same, so the question is really whether there has been above-average appreciation in your particular neighborhood since 2002.

[apirlrain]

I think it's the time frame i am buying since school taxes is july 1 to june 30 fiscal year ;p

I just want some verification, i just couldn't believe what i was hearing. here we thought downpayment is out biggest worried.
to top it off with today's credit market issues, such as percentage downpayment restrictions, loan restriction, cross all t's and dot all i's

[jimmyev]

Originally Posted by apirlrain

must pay all one yr property tax Up front!!!! And you reimburse the seller for what they have paid.

I just made an offer on a house and I don't understand this. It was a standard contract and the property taxes were pro-rated for the year. But escrow wasn't involved.

[greg42]

Yeah, I remember the pro-rating for mine. But typically you're going to have an escrow amount, unless you have a lot of down payment and lenient lender.

Here's what's up. When you buy the house, the seller will have already paid the property taxes for a full year at some point. The school district tax is usually on a July-June fiscal year, whereas the municipal and county taxes are usually on a calendar year. Of course when it gets paid is really dependent upon when these little townships send the bills out, etc.

Anyway, taxes are not part of the purchase price. What's going to happen when you go to closing is that you will have to reimburse the remainder of the year of property taxes that was already paid by the seller. If your closing is in late Feb or early March, say, you'd be reimbursing the seller for the school district tax that he paid up through June. And assuming he has already paid 2010 municipal and county taxes, you would reimburse him for almost a whole year of those since those would be paid up through December. This will all be in your closing document that itemizes the costs.

In addition, typically the lender will insist that property taxes be paid by them out of an escrow account associated with your loan. (It's also typical for your homeowner's insurance to be paid this way.) Because you are starting with a partial year, you will have to put enough into this account at closing such that your subsequent few months of payments will give you enough to pay that school tax bill in August. The same goes true for the municipal/county, but since you won't be paying them for perhaps 10 months or so, that amount will be negligible in the grand scheme of buying a house.

So, in general, included in your closing costs will be payments totaling roughly one year of property tax. Part will be reimbursing the seller, and part will be bulking up your escrow balance in anticipation of the next payment(s).