Home Buying in Highland Park>Question Details

Josh Clancy, Home Buyer in Highland Park, IL

How much taxes do I need to have at closing?

Asked by Josh Clancy, Highland Park, IL Sat Sep 15, 2012

I am buying a house and I have been told that I need to have at least 3 months of taxes in an escrow account at close, but I do not think this is correct. The tax bill for 2011 was $9600 and was paid in full in 2012. If I close January 1 2013, then I should owe zero taxes for 2012 right? Would I need anything in escrow at close? What if I close December 1 2012 instead. Would I only need 1 month of taxes in escrow? Thanks.

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6
You are not telling us when the taxes are due. Once paid the mortgage company starts collecting 1/12 each month and they might want to see a couple extra months in there.
1 vote Thank Flag Link Sat Sep 15, 2012
First installment is due in June and second in September. Since it's paid in arrers, I think the first 2012 tax bill won't be due until June 2013. If I close on 1/1/2013, I would think the current owner would owe that entire bill and I wouldn't owe anything until June 2014.
Flag Sat Sep 15, 2012
Hope your closing went well!
0 votes Thank Flag Link Tue Jan 15, 2013
Hi Josh
The previous answers are correct as most lenders require at least 3 months escrow as a condition for providing a mortgage. I have seen some lenders require up to nine months tax escrow. This money is still yours, however, and will come in handy when you sell the property.
Mike Hope
0 votes Thank Flag Link Wed Sep 19, 2012
Bottom line is that Lenders will usually require a few months of advance for taxes and insurance at closing. Why is this you ask? They like a buffer since the values that are being escrowed each month (1/12) of each total payment are calculated on the current available total billed amount. However, taxes and insurance typically fluctuate and may very well increase by the next payment cycle. But holding excess reserves, the Lender is able to pay your tax and insurance obligations with the excess reserve funds if your taxes or insurance rise.

On a side note, if they dip into your reserves to pay larger bills, they will more than likely adjust your escrow fee to a higher monthly rate and may even ask you to replenish the lost reserves. To the contrary, if your bills decrease as I have also seen happen, they may refund some funds back to you since they are regulated on the amount of reserves they can hold back. Hope this helps.
0 votes Thank Flag Link Sun Sep 16, 2012
The lender controls the amount of taxes to be held in escrow for next years taxes and has the right to have a cushionso that the escrow balance is never negative during the year.. There are laws that they have to refund the overage amount based on monthly balance estimates, and if you have more than you need in the escrow they send a refund amount half way through the year. . Also annual home owners insurance is escrowed. if you put down alot of money, 25% or more you can maybe skip escowing taxes and insurance and take that responsibility on of paying the bills as they come due. To your question delaying closing a month later will make the first installment of taxes sooner, so the goal is to not go into negative escrow level, and if your first installment is due June 1st and 2nd installment is due 3 months later, plus you owe the homeowners insurance on your anniversary date. BTW, normally you need to have proff of prepaid first year of home insurance at closing, and they still escrow for the 2nd year.

if you like my answer, thumbs up me and best answer, thanks!
0 votes Thank Flag Link Sun Sep 16, 2012
It all depends on your lender and the time of year you buy. Lenders always want to ensure there is enough escrow at closing to ensure no problem with paying taxes, but they can not put more than 6 months in or you can ask for an escrow refund.

Taxes are due in most areas in March-May of the year. You will need to pay the taxes for the former owner, but they will rebate that to you at closing. Any taxes you will have to escrow at closing will be put there by the seller. You may even get to keep some of it.

Ask your lender what your escrow needs to be and ask your attorney what the seller will provide per contract for the tax proration. They will have those numbers.
0 votes Thank Flag Link Sat Sep 15, 2012
Thanks. Good info. I will ask my lender.
Flag Sat Sep 15, 2012
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