Prepaid Taxes and Homeowners Insurance

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

They do this to ensure their interests are always protected and your policy never lapses. You can at a later date change policies or even 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 what you have in escrow. If you put down enough of a down payment, some lenders may not require your homeowners insurance to be a part of your note. However, they probably will require proof that your property is insured.

Property taxes are usually paid in arrears and are due in December depending on the county. The current tax bill will be prorated to the day of closing. You will be required to pay from closing until the end of the fiscal year. If your down payment is less than 20% your property taxes will 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 are paid.

In some cases, a portion or all of your prepaid taxes and/or insurance can be paid for you as a part of a seller concession. This would need to be negotiated in the sales contract. If you choose this route, it is very important to get accurate figures because any money not used for seller concessions goes back to the seller. You do not want to leave money on the closing table.

If you have questions about property taxes or just want to know what is reasonable to pay for insurance in the area, please contact us. We also can help negotiate and properly structure seller concessions that lower your upfront cost.