I've got a quick question pertaining to closing costs..
We are buying a new construction home, so what I heard was, the property tax we have to pay is only being assesed on the land. Because of this, will my closing costs be cheaper than if I were to of bought a propert that already had an existing home on it for say, the past 4 years or so?
Thanks in advance!
Tooleman, I've been following your situation closely, but don't recall anything you have said pertaining to closing costs. My lender is running the numbers for us, and is supposed to get back to me tomorrow. He said that should really help and limit our out of pocket costs because of the fact it was new construction.
That made me breathe a sigh of relief because I want to come up with as little as possible at closing because I have a few things to buy out of the gate...
Just wondering how much of a difference it will be...hundreds? Thousands?
Congrats on closing on your home!! Your kitchen looks fantastic!! We went with dark (espresso) cabinets as well!
Is that really how they're doing it? That doesn't make any sense at all. I'm in the midst of a new construction purchase, and property taxes were a huge consideration for us. Maybe it varies by lender, but here's how my situation is going:
Current taxes on the vacant land are about $1,200 annually/$100 per month. Taxes after the house is built will be about $8,400 annually/$700 per month. That's a monthly payment difference of $600. We have to be qualified for a total mortgage payment that includes the total $700 monthly tax amount, and our actual monthly payment will include the higher tax amount, going into our escrcow account. At closing, we have to pre-pay 5 months worth of the higher tax amount into the escrow account, so $3,500. That way, when the actual new tax bill comes, it'll be paid out of the escrow account, and we'll (in theory) have nothing due out of pocket, and our monthly payment will remain the same.
If they based the mortgage and closing costs on the current land tax amount, then we'd only pre-pay $500 at closing, and $600 less per month on the mortgage. But as soon as the new tax bill came in, we'd owe the difference in the tax, plus we'd have to pay enough to get our escrow account up to the new, higher required balance, AND we'd have a $600 increase in our mortgage payment. All told, we'd be out of pocket by at least a few thousand dollars.
I guess if you're expecting that and have budgeted for it, it's fine. But it could be a nasty surprise if you didn't have a firm handle on the numbers.
My property taxes are estimated to be around $3600 a year once the house in completed. That amounts to be $300 a month. Won't my payments reflect that $300/month from the get go from my first payment on??
Also, aren't a years worth of taxes due at closing? If so, is it the previous year that you are paying for at closing, thus the reason I won't need as much because the house wasn't there yet?
I just want to make sense of the numbers before I sign anything.
It might vary by location, but taxes are generally paid ahead of time. What you pay at closing depends on when and how often the tax bills are due.
If you close on 6/1 and tax bills are due 7/1 for the next full year, then you'll pay 1 month of the tax for the current year that the seller already paid (which will be the low amount), to reimburse the seller for what they already paid, plus you'll pay 12 months of tax into escrow to cover the bill that's coming due next month, plus whatever other amount is necessary so that your esccrow account doesn't go under the minimum amount required (maybe a couple of months worth of taxes).
If you close on 6/1 and tax bills are due 7/1 and 1/1 for 50% of the annual amount for next year each, then at closing you'll pay the seller 1 month of reimbursement, plus 6 months to cover the upcoming bill, plus whatever escrow amount is needed.
If you live somewhere where the tax bills are for the previous year, then yeah, I guess you would end up paying less at closing. If you close 6/1 and the next tax bill is due 7/1 for the previous full year, then you'll pay 1 month of the lower tax, and the seller will have to credit you for the 11 months that they owned the land. That amount will go to pay the next tax bill on 7/1, and then at closing you would also just pay whatever amount of prepaid taxes you have to for the escrow account. The amount you saved at closing would flush out eventually if you sold the house and had to credit the new buyer for the taxes they'd be paying for the time you owned the house.
In terms of the amounts and timing, it depends on when the locality re-assesses the property as well. If they don't re-assess it for a while, then you could get away with paying lower taxes for a while. If they re-assess it right away though, then you'll be paying the increased amount immediately.
And it definitely would make sense that your mortgage payment from day one would include your new higher estimated tax amount. I thought you were saying that would be based on the lower amount as well, which is just asking for trouble. I can't imagine that a lender would allow that, but I guess you never know.
I believe at closing you prepay a year's worth of home owners insurance, plus a couple of months of insurance monthly payments go into escrow (depending on the build schedule and closing)...you pay interest from closing until the end of the month, and you pay a few months of your property tax escrow - plus what you need to cover for the following cycle.
We were also told that property taxes would not be assessed on our house, so we wouldn't need to worry about it at first. We would, however, have to be approved for a loan payment that includes the property tax estimate for when the house is built. So if our payment was supposed to be $1800 a month, but because of property taxes issued only on the land, it dropped to $1300...you just put the extra money each month into an account and pay the bill when the payment goes up. However, i think it's more likely we would have to pay the full payment so it's there when the tax bill inevitably goes up. This is what we are assuming will happen.
Just another reason why i'm glad I'll be doing this whole mortgage process once. This is it. Seriously, if my wife gets pregnant with sextuplets, we're still going to shove them all into this 2100 square foot house being built. lol