Prepaid Taxes and Insurance

If you intend to obtain a mortgage to purchase your next home, you will be required to pay homeowner’s insurance as part of your note. You will select the insurance company and the policy details prior to closing and also be required to pay one year in advance. You will then pay your lender monthly and they will pay your insurance company.

They do this to ensure their interests are always protected and your policy never lapses. You can at a later date change insurance companies, but you will need to coordinate it with your lender. Also when you decide to sell your home, your mortgage servicer is required to pay you back the one year you have in escrow.

Property taxes are usually due in December depending on the county. At closing the current tax bill will be prorated to the day. You will be required to pay that amount at closing. If your down payment if less that 20% your property taxes will also be collected as part of your note. You will also be required to escrow one year of property taxes at closing. Lenders require this to protect their interests by ensuring your property taxes get paid.

In some cases, a portion or all of your prepaid can be paid for as a seller concession. This would need to be negotiated in the contract. In doing so however it is very important to get accurate figures because any money not used on seller concessions will go back to the seller. If you have questions or need help structuring this, please contact us.