When purchasing a home, the down payment and closing costs are considered. However many forget to consider the cost of prepaid items which include the taxes and insurance.
So how could buying a home at the beginning of the year save you hundreds of dollars? When you purchase a home in the beginning months of the year, most county and /or city municipalities have already collected the tax payments from the seller/property owner in the previous year. This can drastically reduce the amount collected at closing for the taxes as well as reduce the amount needed to establish a new escrow account.
The escrow account is a holding account that a borrower pays into each month for taxes and insurance. The funds are collected by the mortgage servicer on a monthly basis through the borrower’s monthly mortgage payment (the T and I portion) in order to pay the taxes and/or insurance(s) on or before their annual due dates. Depending on the due date of the taxes, the purchaser could be significantly impacted with an increase in the anticipated amount needed to close the loan.
A Loan Estimate (LE) approximates the total amount required for the loan closing combining the down payment and closing cost. The borrower can obtain the Loan Estimate from a qualified mortgage loan officer to determine the estimated amount of closing costs and prepaid items such as taxes and insurance.
So if you’re thinking of purchasing a new home and you want to control your costs, consider starting your search sooner rather than later. Your wallet may be glad you did.
Still have questions? The mortgage lending agents at CDC Federal Credit Union can help.