Home Buying in 12801>Question Details

Tchica, Home Buyer in 12801

Is it standard practice to have to prepay your property taxes for the coming year, upfront at closing?

Asked by Tchica, 12801 Tue Dec 7, 2010

We were given a $4k surprise on our GFE, which we were given at the first loan signing (application?). We weren't aware, and had never heard of, having to prepay a year of property taxes upfront. Is this standard practice?

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Yes, taxes are paid in advance. Usually you're not paying for the whole year, though unless the tax dates happen to be within a month of your closing date. It's not a prepayment, though, rather it's a payment of taxes due, or if the due date is past or more than a few months away, it's a reimbursement to the seller who already paid, but now will not own the property which taxes were paid. Then there's a lender requirement to make a deposit to the tax escrow account so the money will be available when the tax due date arrives. All a bit confusing for the home-buyer who doesn't deal with this more than a few times in life, but fairly explainable if the lender and/or real estate agent take some time to step the buyer through the process with a few examples.
0 votes Thank Flag Link Wed Dec 8, 2010
Yes, the attorneys will pro-rate the taxes at closing.
0 votes Thank Flag Link Thu May 3, 2012
Thank you everyone. We are impounding our taxes into an escrow account (here in upstate NY that's $333/month) which is why we were surprised. We are doing an FHA loan with a 3.5% down; that may explain the prepayment. Thank you all for the information.
0 votes Thank Flag Link Wed Dec 8, 2010
Tchica,

To be precise, it depends on the timing of the due date for the tax installments. I will give you a good example:

Here in CA, our first installment of taxes is due on Nov. 1 and late on Dec. 10. Our second installment of taxes are due on February 1 and late by April 10. Most homeowners do not escrow/impound their taxes and insurance.

If you have a transaction that is closing on December 8th, for example, you will be required to bring in your first installment of taxes (they are currently due). Your first payment on the new loan will be February 1, so technically your second installment of taxes will also be due at close. Escrow would, in this case, collect both installments at close, and this would be a shock to most borrowers unless their loan officers alerted them in advance.

This is just one example, but if you have specific questions or scenarios, please let me know.

Rob Spinosa
rspinosa@rpm-mtg.com
0 votes Thank Flag Link Wed Dec 8, 2010
Consider asking your attorney the question as well, however not unusual to prepay property taxes.
0 votes Thank Flag Link Wed Dec 8, 2010
Actually whether it is standard or not depends on your area. I would ask at your local bank where they do mortgages. They could tell you right away if this is standard. It if is, you should have been informed of this before you got to the signing table and got the shock of your life!!! Having gotten this far, I guess you have to pay the taxes for one year. Look on the bright side - at least you are done with the taxes for the rest of the year and you don't have to think about them.
0 votes Thank Flag Link Wed Dec 8, 2010
It depends on the lender and how the state collects taxes are taxes pay up front or in arrears, also when you settle . One thing for sure you will be paying taxes. Have the lender explain the GFE so you can understand what is going on.

Good Luck and enjoy your new home
0 votes Thank Flag Link Wed Dec 8, 2010
Although I have never seen a lender asking for more than six months of property tax at closing, I guess it could be possible. You are going to pay it sooner or later, but I can understand your surprise and frustration. If I understand you correctly you received the GFE just after you applied for the loan. If that is the case call the loan officer talk to them and have them fully explain the closing costs. If you don't feel comfortable with what you hear, find another company to do business with.
0 votes Thank Flag Link Wed Dec 8, 2010
It depends on what type of loan you got, it is common for loans where you are putting down less than 20% down to have an escrow account, they certainly should have told you about this and it should have been disclosed on your good faith estimate. It is more common for 6 months tax payments than a year.
0 votes Thank Flag Link Wed Dec 8, 2010
There is usually an escrow fund which can include homeowners' insurance, property tax, mortgage payment. It is not unusual.

Good luck!

Ralph Windschuh
Associate Broker
Senior Real Estate Specialist
Certified Buyer Representative
Century 21 Princeton Properties
631-467-0009
rwindschuh@c21princetonproperties.com
0 votes Thank Flag Link Wed Dec 8, 2010
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