I am Confused... Closing Costs, Pre-paids are what?

 You have found the perfect Realtor, Loan Officer and House...

  Now it is time to write an offer.

Your Realtor says...

What terms do you want when we write your offer to purchase this property?

Then you are hearing closing costs, pre-paids, pro-rated taxes...

STOP; you are thinking. What does all this mean!

When you have a contract to purchase a home; it will determine how much money you will be spending; for the price of the home, financing and out of pocket expenses.  Plus, things like who is going to provide what service such as: termite inspection, title work, closing, survey and more. The contract will also give time limits for everything that needs to be done such as: home inspections, moving in/out of property, applying for financing, closing date and more. This is when you need a good Realtor on your side.

I will cover all the above topics but for now let's talk about ...   

                                                             Closing Cost, Pre-paids and Pro-ration of Taxes.

CLOSING COST:  Closing costs are charges for services rendered by the various companies involved to bring your home loan to the closing table. The lender requires these services to close your loan. Closing cost will vary from lender to lender and loan program to loan program. Closing costs include items such as credit report, appraisal, processing fees, lender fees, title fees, lender/owner title policies, attorney fees and state/county/city transfer taxes. You will see other items such as termite inspection, repairs & home warranties but they are not included in closing cost limits. Listed are common charges but are not all inclusive.

PRE-PAID ITEMS:  Pre-paid items include pre-paid interest, one year hazard insurance premium, two to three months hazard insurance for escrow, city and county property taxes for escrow (this will vary depending on if your home is subject to city and/ or county taxes and when you close), two months private mortgage insurance for escrow (PMI), if required and up front PMI, if required.

ESCROWis the bank account used to pay your hazard insurance, PMI and property taxes for future years when they become due. Your escrow account is held by your lender and you will receive account information yearly. You will receive a refund of any overage and/or charged for shortages yearly, normally you will receive a yearly statement. When you sell your home any unused portion held in your escrow account will be returned; after you sell your home. Some loans do not require escrow accounts, if you are paying 20% or more down payment but lenders may charge you extra for that option; ask to be sure that it is not costing you a higher interest rate.

PRE-PAID ITEMS are paying upfront for your homeowners insurance (hazard insurance), setting up your escrow account for property taxes, homeowners insurance and private mortgage insurance (if required).

PRO-RATION OF TAXES:  Pro-ration of taxes is a division of the property tax bill determined by the closing date. The pro-ration of taxes is not considered a closing cost or pre-paid item but it will show up on the settlement statement at closing. If closing is July 1, XXXX, the seller, since he or she owned the property from Jan 1st is responsible for the taxes from Jan through Jun 30, XXXX. The buyer is then responsible for the taxes from Jul 1st through the end of the year. The buyer will receive credit for the seller's portion of property tax and will be required to pay the full tax bill for that year. If you have an escrow then the lender will pay the tax bill out of the escrow account.

If you have any questions contact Brenda at brenda@imsiloans.com

Integrity Mortgage Services, Inc.

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