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DMDT087
LIF Infant
Member since 4/18 54 total posts
Name:
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Escrow / Prepayment costs..help explain!
Hi All! I know this should be under "home" but this forum is much more active.
The exciting news is - we're under contract for a home! YAY!
less exciting news is how much buying a home costs 
We just got our loan details and none of the costs really surprised me (11K in closing), but I can't really wrap my head around the concept of escrow/prepaid costs (8K). I'm going to call my loan officer tomorrow, but I thought maybe someone could explain sooner than that. Tried Googling but still not 100% clear, especially it being specific to NYS.
For example, prepayment includes 8 months worth of taxes. I know taxes are due 2x/year - so, come January, are we still going to be asked to pay 6 months worth of taxes? Or will we not be asked until May/June?
Any help will be appreciated :)
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Posted 7/30/18 9:28 PM  |
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ChristinaM128
LIF Adult
Member since 8/12 4043 total posts
Name:
Christina
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Re: Escrow / Prepayment costs..help explain!
Your taxes and insurance will be part of your monthly mortgage bill. So your mortgage payment may be a lump sum of $2600, $500 of which is actually for mortgage, $100 of which will go into an escrow account to pay for insurance once yearly, and $1000 of which will go into an escrow account to pay for taxes twice yearly. It’s actually town taxes twice yearly and school taxes twice yearly. Those on here who pay their taxes NOT through their mortgage probbaky have a better idea of the schedule. The bank/mortgage co. will automatically pay those bills for you, you will just get receipts from the town and from the insurance co. You won’t get billed. And in Dec., you’ll get an escrow summary, along with a charge if there wasn’t enough in your escrow account (ie if your taxes went up, you’ll have to make up that difference after the fact). And then the bank will let you know how much your new payments for the new year will be. So at closing, your bank is asking you to start up your new escrow b/c they have a payment due soon to the town (October I think?).
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| Posted 7/31/18 6:52 AM |
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ChristinaM128
LIF Adult
Member since 8/12 4043 total posts
Name:
Christina
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Re: Escrow / Prepayment costs..help explain!
And congratulations by the way!
And also, because taxes are prepaid (ie, we pay in April for april-October, the previous homeowners technically paid up through oct., and you owe them July-oct now)!
Message edited 7/31/2018 6:55:31 AM.
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| Posted 7/31/18 6:52 AM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
It's basically what the PP said.
Right now, you will need to prepay certain things, like your homeowner's policy because you can't purchase a home without proof of 6 months of insurance already paid. At closing your attorney will work out with their attorney credits/debits for taxes the sellers already paid for this year to ensure all taxes are paid thus far.
Then you basically prepay to start your escrow fund. Your mortgage company use your escrow to pay for your homeowners insurance and any taxes owed throughout the year (paid 2x/year). Therefore, they need enough money in there to cover the next bills, whenever they are. If you haven't pre-funded the escrow account, then they can't pay those bills for you.
You will never personally write out the check for taxes. It's all done automatically and comes from your escrow. You pay a certain amount into it each month to ensure it covers your upcoming bills. This is a constant amount. You will never again pay a large lump payment into your escrow.
Once a year (not necessarily in December, it could be any month), your mortgage company will do an escrow analysis. If there's too much left in there, they give you the option to get a refund or apply it towards principal. They also look at what your taxes and homeowners will be for the upcoming year (typically, both go up each year) and determine if they need to increase or decrease your mortgage payment each month for the following year.
Hope that clarifies.
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| Posted 7/31/18 10:52 AM |
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Momma2015
Mommax2
Member since 12/12 6656 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by NYCGirl80
Once a year (not necessarily in December, it could be any month), your mortgage company will do an escrow analysis. If there's too much left in there, they give you the option to get a refund or apply it towards principal. They also look at what your taxes and homeowners will be for the upcoming year (typically, both go up each year) and determine if they need to increase or decrease your mortgage payment each month for the following year.
Hope that clarifies.
Ours never gives us the option to apply to our principal! We definitely would've done that. They just send us a check for the excess... which is still also really nice. lol!
Message edited 7/31/2018 11:20:31 AM.
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| Posted 7/31/18 11:20 AM |
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MarathonKnitter
HAPPY
Member since 2/07 17374 total posts
Name:
EMBRACING CHANGE
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Re: Escrow / Prepayment costs..help explain!
the bank doesn't trust you to pay your bills.
when your home has a mortgage, the escrow is a cushion the bank has to make sure you pay your bills. this helps keep them happy that your house won't be taken from you (and them) because you didn't pay something like your taxes (tax lien).
so... what they do to cover their butts is create this account that holds the money until it's time to pay these items... usually it's limited to taxes and homeowners insurance.
you pay a lump sum at the time you buy your house to start the cushion. after that, you pay a monthly amount for those things that will be paid from the escrow account... if your taxes are $1200/year (just to keep the math easy)... $100 of your mortgage payment will be a prepayment towards this. the bank will collect it for you and then pay your taxes when they are due.
the day you sell your house, whatever is in the escrow account that you didn't use, will be deducted from your mortgage balance... in other words, the bank keeps the money.
again, it's all for the purpose of the bank covering their butts.
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| Posted 7/31/18 1:52 PM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by MarathonKnitter
the day you sell your house, whatever is in the escrow account that you didn't use, will be deducted from your mortgage balance... in other words, the bank keeps the money.
Not necessarily true. When we sold our house we got a check for our escrow balance. But if the bank puts it towards your mortgage repayment, it's the same thing. You still have to satisfy your mortgage one way or another.
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| Posted 7/31/18 2:14 PM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by Momma2015
Posted by NYCGirl80
Once a year (not necessarily in December, it could be any month), your mortgage company will do an escrow analysis. If there's too much left in there, they give you the option to get a refund or apply it towards principal. They also look at what your taxes and homeowners will be for the upcoming year (typically, both go up each year) and determine if they need to increase or decrease your mortgage payment each month for the following year.
Hope that clarifies.
Ours never gives us the option to apply to our principal! We definitely would've done that. They just send us a check for the excess... which is still also really nice. lol!
I guess you could just deposit it into your account and then write them another check (or do it online) to make an additional payment marked towards principle only.
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| Posted 7/31/18 2:15 PM |
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MarathonKnitter
HAPPY
Member since 2/07 17374 total posts
Name:
EMBRACING CHANGE
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Re: Escrow / Prepayment costs..help explain!
Posted by NYCGirl80
Posted by MarathonKnitter
the day you sell your house, whatever is in the escrow account that you didn't use, will be deducted from your mortgage balance... in other words, the bank keeps the money.
Not necessarily true. When we sold our house we got a check for our escrow balance. But if the bank puts it towards your mortgage repayment, it's the same thing. You still have to satisfy your mortgage one way or another.
huh.
i guess it might vary by lender. we didn't get that money.
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| Posted 7/31/18 5:14 PM |
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tara73
carseat nerd
Member since 11/09 3669 total posts
Name:
Buttercup
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Escrow / Prepayment costs..help explain!
We had to prepay 1 year of homeowner's insurance and it is not escrowed for our lender. They only escrow the taxes.
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| Posted 8/1/18 8:59 AM |
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Momma2015
Mommax2
Member since 12/12 6656 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by NYCGirl80
Posted by Momma2015
Posted by NYCGirl80
Once a year (not necessarily in December, it could be any month), your mortgage company will do an escrow analysis. If there's too much left in there, they give you the option to get a refund or apply it towards principal. They also look at what your taxes and homeowners will be for the upcoming year (typically, both go up each year) and determine if they need to increase or decrease your mortgage payment each month for the following year.
Hope that clarifies.
Ours never gives us the option to apply to our principal! We definitely would've done that. They just send us a check for the excess... which is still also really nice. lol!
I guess you could just deposit it into your account and then write them another check (or do it online) to make an additional payment marked towards principle only.
True. We just stashed it for a rainy day. 
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| Posted 8/1/18 9:55 AM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by MarathonKnitter
Posted by NYCGirl80
Posted by MarathonKnitter
the day you sell your house, whatever is in the escrow account that you didn't use, will be deducted from your mortgage balance... in other words, the bank keeps the money.
Not necessarily true. When we sold our house we got a check for our escrow balance. But if the bank puts it towards your mortgage repayment, it's the same thing. You still have to satisfy your mortgage one way or another.
huh.
i guess it might vary by lender. we didn't get that money.
You still "got" the money. It was just used to satisfy your mortgage. When you sell your house, you still need to pay off your mortgage one way or another. It typically comes out of the money of the buyers, but your escrow would have been applied to that final balance.
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| Posted 8/1/18 10:38 AM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Yes, you always have to pay your initial first year of homeowner's policy upfront. Typically year 2 is paid out of your escrow.
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| Posted 8/1/18 10:41 AM |
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DMDT087
LIF Infant
Member since 4/18 54 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by ChristinaM128
Your taxes and insurance will be part of your monthly mortgage bill. So your mortgage payment may be a lump sum of $2600, $500 of which is actually for mortgage, $100 of which will go into an escrow account to pay for insurance once yearly, and $1000 of which will go into an escrow account to pay for taxes twice yearly. It’s actually town taxes twice yearly and school taxes twice yearly. Those on here who pay their taxes NOT through their mortgage probbaky have a better idea of the schedule. The bank/mortgage co. will automatically pay those bills for you, you will just get receipts from the town and from the insurance co. You won’t get billed. And in Dec., you’ll get an escrow summary, along with a charge if there wasn’t enough in your escrow account (ie if your taxes went up, you’ll have to make up that difference after the fact). And then the bank will let you know how much your new payments for the new year will be. So at closing, your bank is asking you to start up your new escrow b/c they have a payment due soon to the town (October I think?).
Ok - so I think I understand how escrow works now - but now what's the difference between paying your taxes with your mortgage and not paying your taxes with your mortgage? If you're paying with your mortgage, are you sending in payments (that ultimately go into escrow account) every month vs. twice yearly?
Thanks for the help everyone! :)
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| Posted 8/2/18 7:42 AM |
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NYCGirl80
I love my kiddies!
Member since 5/11 10413 total posts
Name:
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Re: Escrow / Prepayment costs..help explain!
Posted by DMDT087
Posted by ChristinaM128
Your taxes and insurance will be part of your monthly mortgage bill. So your mortgage payment may be a lump sum of $2600, $500 of which is actually for mortgage, $100 of which will go into an escrow account to pay for insurance once yearly, and $1000 of which will go into an escrow account to pay for taxes twice yearly. It’s actually town taxes twice yearly and school taxes twice yearly. Those on here who pay their taxes NOT through their mortgage probbaky have a better idea of the schedule. The bank/mortgage co. will automatically pay those bills for you, you will just get receipts from the town and from the insurance co. You won’t get billed. And in Dec., you’ll get an escrow summary, along with a charge if there wasn’t enough in your escrow account (ie if your taxes went up, you’ll have to make up that difference after the fact). And then the bank will let you know how much your new payments for the new year will be. So at closing, your bank is asking you to start up your new escrow b/c they have a payment due soon to the town (October I think?).
Ok - so I think I understand how escrow works now - but now what's the difference between paying your taxes with your mortgage and not paying your taxes with your mortgage? If you're paying with your mortgage, are you sending in payments (that ultimately go into escrow account) every month vs. twice yearly?
Thanks for the help everyone! :)
I already answered that above -
Then you basically prepay to start your escrow fund. Your mortgage company use your escrow to pay for your homeowners insurance and any taxes owed throughout the year (paid 2x/year). Therefore, they need enough money in there to cover the next bills, whenever they are. If you haven't pre-funded the escrow account, then they can't pay those bills for you.
You will never personally write out the check for taxes. It's all done automatically and comes from your escrow. You pay a certain amount into it each month to ensure it covers your upcoming bills. This is a constant amount. You will never again pay a large lump payment into your escrow.
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| Posted 8/2/18 9:43 AM |
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