Tax Impounds Increase Closing Costs per Calendar
A buyer needs to know how the calendar will increase closing costs because of tax impounds. When I quote closing costs for a client, I'm not only including lending costs, but also escrow/title fees and prepaid insurance, taxes and interest. If I quote less than that, a buyer will not have a realistic idea of what funds it will take to close.
The number of tax months collected in escrow for impounds is standardized per an established calendar for lenders. This allows them to collect enough taxes upfront for the impound account so when the tax bill comes due in November and February there will be enough funds to cover taxes, according to what month the loan funds. Remember, a loan funding in November, will not begin paying mortgage payments, hence impounds, to the lender until January. So expect these calendar fluctuations in closings costs on purchases that have mandatory impound accounts (FHA, first time home buyers, and less 20% down payments).
So if a buyer's closing costs in Feburary are compared to closing costs in September, prepaid tax impounds on a $400,000 home will swing between from a withholding of $833 in Feburary (2 months withheld) in closing costs to $3,753 in closing costs for September (9 months withheld). A loan agent quoting closings costs correctly will point this out to a buyer, instead of just avoiding the issue by only quoting loan fees.
In some cases, buyers can avoid funding impound accounts all together by promising to pay the property tax and hazard insurance obligations on their own, not through their mortgage payments. This creates a riskier situation for the lender by taking the responsibility to keep taxes and insurance current out of the lender's hands. To offset this, lender's like to add a .125% of loan amount charge to waive the impound accounts. In California, hence Sonoma County, this fee is usually not allowed. Also, all FHA loans require impounds as do loans to first time home buyer and loans with mortgage insurance (over 80% LTV).
Closing Month # of months of Taxes collected for impounds