Buyer Credit at Closing - Taxes ***SHANE OR DALLAS ?? HELP?

[Holly1221]

I've searched all over the forum but can't find a solid answer.  The seller will be responsible for real estate taxes at closing which my agent said will be a credit to me. (property taxes in Indiana are paid the following year).  How does this work??  Will that reduce the amount I am required to have in hand at closing?

FHA loan, 3.5% down = $6405

I don't have the Hud1 form yet & the GFE doesn't include taxes.  Lender said he can give me a better calculation after he does title work & tax info.

Taxes due from seller are $3850.

I'm trying to get some ballpark # of what I need to have since closing is supposed to be in about 2 wks.

[frogfan12]

The credit may not affect your downpayment, but it will most likely bring down the cost of your home and indirectly be applied (or added to, I should say) your downpayment. Your bank/lender will let you know exactly how much money to bring to closing. Hopefully you will not have to wait until about 3 hours before closing like I did. Haha.

[Holly1221]

Anyone know how this will work?

[Tooliebell]

Holly-- I don't know how it works.  Our property taxes are paid twice a year and mine were pro rated.  So it shows on my GFE the total amount of taxes, but then there is a credit for the pro rating.  I think it gets pretty confusing. 

My dp is $5425 but with my earnest money down and the appraisal I already paid for, plus a credit from the bank for having to get a second appraisal, I am looking at bringing in about $1800 less.  My closing is in 24 hours and I don't have a HUD statement yet.  Good thing DH is self employed and can run to the bank for me tomorrow when I finally find out!

[Anonymous]

Holly - are you talking about property taxes or "sales" tax?

Typically you would pay property taxes into an escrow account, and if the seller gave you a credit it would just offset the addition of that amount to your closing costs. Your down payment is a required amount, must come from you, so that amount won't change.  Unless you have some other estimate of closing costs ,no one can give you an idea of what you might need to close, other than the down payment.

If you are talking "sales" tax, the seller always pays that, and you won't really ever see it. It will show up on some of your documentation, but never would show up as something you owe.

[203bravo]

The amount of property taxes collected from the seller would be placed into your escrow account.

[Lel]

In my situation, I do not have an escrow account, and so the credit for property taxes resulted in a reduction of my closing costs.  However, that credit was only a few hundred dollars - if it were much higher, then perhaps an escrow account would have been required.

[Holly1221]

Thanks for the input!  The taxes will be about $3850 so I am guessing an escrow will be set up. 

[StartingOver10]

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@Holly1221 wrote:

Thanks for the input!  The taxes will be about $3850 so I am guessing an escrow will be set up. 

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Holly, the escrow is more dependent upon LTV than actual cash amount of real estate taxes.

Are your real estate taxes paid in arrears? For example, here in Fl, the tax assessed date if Jan 1st each year, but the actual bill doesn't come out until Nov 1st and if you pay in Nov you get a 4% discount off the bill since it is not actually due until the following March.

However, when the lender is setting up the escrows, all the payments are figured for a Nov payment.

When you close the seller has to give full credit for each day up to the date of closing for the taxes.  That money is credited to you so you bring in less to closing. But your escrows are set up on the same HUD.

Your loan officer ought to have the details of your taxes and escrows now since that information is already known. The lender uses the most recent figures - in this case 2011 to determine exactly what the escrows will be.

[Holly1221]

Our taxes are paid in arrears.  So, 2011 taxes will be paid in 2 installments in 2012.  The realtor told me I would get a "tax credit from seller for property taxes and NOT to use that money because I will have to pay the taxes in 2012".  She said she had buyers in the past that got the tax credit & then spent that moeny not realizing they had to pay taxes with it later.

It's a large amount so guess that's why I'm so wrapped up in figuring it out!  Other than it going in an escrow account, the only way I could get a 'credit' for that would be less down since sellers are paying most of the closing costs.  But, I've read that you HAVE to pay the 3.5% down payment...and I don't think the loan amount will be changed like someone else mentioned............SO, that's where/why I'm confused.