Home Buying in 03038>Question Details

msowena, Home Buyer in Windham, NH

What are "Reserves Deposited to Lender" for?

Asked by msowena, Windham, NH Tue Apr 16, 2013

I have a good faith estimate summary. I understand the "pre paid" items that are paid in advance (1 yr homeowners insurance). I know I pay 1 year in advance and then I will continue to pay every month this year and that will pay for next years insurance and so on so forth.

What I don't understand is why then I am paying another 3 months of hazard insurance (also paying 6 months worth of taxes) for pre-paid items "Reserves Deposited to Lender".

I close April 30th 2013. Does this mean that after paying the closing costs/pre-paid items listed above... I will not need to pay my Insurance for the first 3 months and will not need to pay taxes until July 1st (I assume the 6 months of for the first 4 months of the year I didn't own the house and the next 2 months is ore-paid therefor I don't pay again for a couple months).

Is this correct?

Thanks in advance! I have talked to my lender a lot today and am trying not to bug her with this since she already tried to explain it once

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Answers

2
Good Morning. It saddens me that your lender did not explain all fees on your GFE.

Reserves are deposited with the lender to create a cushion for any overages that may arise when the insurance and tax bill become due. Your mortgage payment is made up of PITI (Principal, Interest, Taxes, & Insurance). You paid your homeowners insurance upfront for the year, and will be paying a monthly fee to the lender with your mortgage each month for the policy that will become due in 12 months. All lenders require 3 months reserves to be deposited into this account. Each payment will go into your escrow account. You will have an escrow for Taxes and Insurance. You are not paying your insurance on a monthly basis directly to the insurance company as you would on a vehicle. Home Owner Insurance Policies are very different than that of a vehicle policy which is paid monthly.

You are thinking on monthly terms, you need to look at your home owners insurance and property taxes as being due yearly and paid on a yearly basis with one payment, which your lender will make the payment for you with the money you have deposited into the escrow account.

Therefore from the date you close you are insured for an entire year, with a policy paid for the entire year. Each monthly payment is to secure the next years policy in full.

Same goes for your Property taxes which are due in full once a year.


Have a great weekend.

Christina Solorzano;
CEO & SR Credit & Mortgage Consultant of
Everlasting Credit
Ex-Mortgage Broker of more than 10 years
http://www.everlastingcredit.com
0 votes Thank Flag Link Sat May 4, 2013
The amount you pay in advance is what is used to start your escrow account. You should ask your loan officer to explain this to you and they can show you on paper as well. You could also ask your buyer broker who should be guiding you as well. good luck with your closing.
0 votes Thank Flag Link Thu Apr 18, 2013
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