Thursday May 3, 2018
Closing costs typically include charges required by lenders and other parties. Pre-paid costs and escrows are also included in settlement statements and are frequently referred to as closing costs, but are actually a separate category. Information on pre-paid expenses and escrows for Gehan Homes closings is provided in this article.
Pre-paid expenses are fees that must be paid at settlement but actually apply to an upcoming period of time. Common pre-paid items are hazard insurance and interest. Insurance has a yearly premium that must be paid up-front. Some home buyers submit payment for the premium directly to the insurance company in advance of the closing, while others have the bill paid at closing.
Interest is another pre-paid expense. Mortgage bills are normally paid in arrears, so they apply to a past time frame. For example, if you purchase real estate January 15th, your first monthly bill would not be due until March 1st, and it applies to the month of February. So there is no payment covering January 15th-31st. The interest for that period is billed at the closing and categorized as pre-paid interest.
Escrowed Funds for Real Estate Purchases
Escrows are monies placed in a holding account, known as an escrow account, and disbursed when needed. They are set up to cover regularly billed fees such as mortgage insurance, real estate property taxes, and property insurance. Every month, included in the regular mortgage bill, a certain amount of money is placed into the escrow account. When the bills are due, the appropriate amount is taken from the escrow account. This accomplishes two goals. First, it reduces the difficulty of borrowers having to plan for the large lump sum payments. Secondly, the mortgagor ensures that the payments are made, which preserves their interest in the property. Escrows are not required by all mortgage companies, but it is common for loans with lower down payments.
Information On Pre-paid Expenses and Escrows
The cost of escrows and pre-paid expenses can differ based on the time of year in which you close. Closing close to the end of the month will typically minimize pre-paid interest. Taxes and escrows will be based on the community and when invoices are issued. If minimizing cash needed at closing is critical, discuss the time frame with your Gehan Homes sales associate and mortgage consultant. For more assistance on the this topic Information on pre-paid expenses and escrows for Texas home closings, you can contact any of our helpful sales associates.