Home Buying in Hudson>Question Details

Skyred, Home Buyer in Hudson, FL

what does prorated mean?

Asked by Skyred, Hudson, FL Sat Apr 17, 2010

I am scheduled to close May 28th but we could push it back to the beginning of June if we wanted. Which is better? Also, when is the best time to lock in an interest rate on a 30yr FHA Fixed loan?

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Skyred,

Your lender is the best person to contact to determine how to best handle the lock rate. Regarding prorations, lenders are going to collect prorated interest for up to 30 days prior to your first payment being due, and property taxes are going to be prorated from the beginning of the year to the day of closing. You have to check with the state and county you are purchasing in to determine what the property tax calendar is to determine what you proration will be.

To answer your specific question, your interest proration is going to be less if you close on the 28th vs. but the credit that you receive for your tax proration will be less (you are given a credit because you are going to get the whole tax bill when it becomes due). If you wait until the 1st to close, you will have approximately 30 days interest due, and your the tax proration credit will less, so the closing on the 28th will be more favorable. It will not make a huge impact either way.

Hope this helps.

Fred Strickroot, Realtor®, MBA, CDPE
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1 vote Thank Flag Link Tue Jul 10, 2012
Prorating applies to items that pertain to the house on what there is a constant expense! Property tax is one of these expenses. No matter when the house sells, there is a dollar amount for the taxe owed for that year by the seller and by the buyer! Since these taxes are paid the following year for the year that is current, then it comes to the solution that the one buying the house will pay for taxes from the day of closing till the end of the tax year, and that the seller will pay for the taxes from the start of the year till the day befor the closing. This has been determined to be the fairest method to calculate the tax obligation of both parties. If you obtain a mortgage you will be prorated the interest accrued from the day of closing to the first payment date. This is considered fair to the lender. If the home was a rental property and it contained a renter, the rent for that month would be split by proration for both the buyer and the seller. This would be calculated from the first of the month till the day before the sale and the buyer recieves the remainder of the month from the closing date on, this proration would be the rent for one month divided by 30 and then multiplied by the number of days each party is entitled to! I hope this better helps everyone that has thought about this topic! If you would like to know more, please feel free to call me any time, 352-206-2371
1 vote Thank Flag Link Wed Aug 18, 2010
Prorated charges allocate percentages of certain expenses to be paid by the buyer and seller-- for example if the seller paid the property taxes in full for the year and you close mid year, half of the taxes will have to be reimbursed to the seller.
1 vote Thank Flag Link Sat Apr 17, 2010
Your mortgage broker would explain to you lock rate .

Prorated means you pay % of a certain amount vs. full 100%
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0 votes Thank Flag Link Sat Apr 17, 2010
Prorated means an expense is divided up, based on the number of days it applies.

For example: Let's say that taxes on a home you're buying are $1,200 a year. If you bought on June 30 (the middle of the year), the taxes would be prorated--you'd pay $600 and the seller would pay $600.

It's generally been considered better to close near the end of the month--you pay less interest. However, some lenders now allow you to close within the first 10 days of the month and not be hit with an entire month's interest. Check with your lender to see whether you have that option. If so, then it really won't much matter. Except that lots of settlement and title companies get really backed up with everyone wanting to close the last couple days of a month.

Hope that helps.
0 votes Thank Flag Link Sat Apr 17, 2010
Don Tepper, Real Estate Pro in Burke, VA
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