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SummerMom
Now a mom of 2!
Member since 6/07 4970 total posts
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Question about mortgages and escrow
I have been preapproved by Bethpage, Chase, HSBC, and Continental (long story). Anyway, they're all pretty much offering me the same thing: same rates, and closing costs are pretty close to each other.
Here's the thing, though: Continental makes you put 8 months of taxes in escrow, on top of the taxes you have to pay off to the owner for the taxes he pre-paid. The other banks make you put either 2 (Chase) or 3 (HSBC, Bethpage). So all other things being the same, I'd have to bring about $5000 more to the table if we use Continental, because they're asking for so much more tax money to be put in escrow.
Why? What does that money do in there? I really don't have an extra $5000 to throw around for no reason. I like Continental and everything with them seems so quick and convenient, but I don't understand why they need 8 months' worth of taxes - what do they do with it and is it to my benefit at all to have it there? Because if not, I'd rather use one of the banks that doesn't ask for so much up front when I'm already writing checks for over $80,000 that day.
Message edited 12/20/2009 12:56:03 AM.
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Posted 12/20/09 12:54 AM  |
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Mommy2Boys
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C
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Re: Question about mortgages and escrow
Some banks take more because they estimate tax increases. If you are buying a house now, your taxes are probably going to increase the 2nd half of next year. Instead of having a shortage and hitting you up for more money (which will probably happen anyway) they factor in that increase.
Honestly, ask which bank will allow you to take your taxes out of escrow and after how long. I took my taxes out of escrow after a year because they were taking $400+ extra from me a month to have it sit there and probably earn interest on my money 
ETA: When we closed I believe they collected a full year of taxes.
Message edited 12/20/2009 8:46:14 AM.
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| Posted 12/20/09 8:45 AM |
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csorisi
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Re: Question about mortgages and escrow
Taking taxes is all about when you close too. the other banks may take more even though they are telling you 2 months.
If the house is in Nassau taxes are due in Jan & July (town) and Oct & April (school)
If you close in Feb your first payment wont be until April--the bank may require 2 months for school taxes plus you paying the school taxes to the title company because the taxes become a lien on the same day your 1st payment is due--therefore you would be putting up 7 months of taxes just for school. With the town they would require 3-4 months of taxes because when you start making your first payment until the time the payment is due then you would not have enough to pay the taxes in July.
If you are in Suffolk taxes are due Dec and May. If you close in Feb the bank is going to require at least 6-8 months of taxes because when you make your first payment they will only have 2 payments worth to pay may and will be short.
As for what it does--it is just a way for them to make sure that they get paid. They have a computer program that tells them what amount they need to take from you based on when the taxes are and then they can give an aggregate adjustment. I always say that although it sucks you would rather they have a little more in escrow then too little because you don't want them to send you a random bill one day saying oh by the way your escrow is short and you owe us X dollars now or $500 more a payment for the next amount of months.
I would see what your on or about date is and determine when your taxes are due next and speak to the banks and see what the realistic number is. If everything else is the same and continental is taking more than everyone else still then I would go with someone else.
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| Posted 12/20/09 9:56 AM |
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SummerMom
Now a mom of 2!
Member since 6/07 4970 total posts
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Re: Question about mortgages and escrow
Thank you for the info. We're supposed to close on or about Feb. 15 in Nassau. Knowing that, all the banks we talked to are figuring that we have to pay 2 months' of taxes for what the owners paid already (through April). And on top of that, we have to pay a flat 8 months of taxes (Continental) or 2-3 months (everyone else) as... a reserve? That's what I'm confused about. So the money sits there in case my taxes increase, so that my monthly payment stays the same? And if I have 8 months in reserve as opposed to 2 months, my monthly payment can stay the same for a lot longer, as in, years? Or do I have this totally wrong?
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| Posted 12/20/09 12:05 PM |
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SummerMom
Now a mom of 2!
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Re: Question about mortgages and escrow
Anyone? Please, we have to decide by Tuesday at the latest and I'm freaking out!
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| Posted 12/20/09 7:25 PM |
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Mommy2Boys
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Re: Question about mortgages and escrow
Posted by DavaDay
Thank you for the info. We're supposed to close on or about Feb. 15 in Nassau. Knowing that, all the banks we talked to are figuring that we have to pay 2 months' of taxes for what the owners paid already (through April). And on top of that, we have to pay a flat 8 months of taxes (Continental) or 2-3 months (everyone else) as... a reserve? That's what I'm confused about. So the money sits there in case my taxes increase, so that my monthly payment stays the same? And if I have 8 months in reserve as opposed to 2 months, my monthly payment can stay the same for a lot longer, as in, years? Or do I have this totally wrong?
Something doesnt make sense...are you sure they are collecting in months?  Usually they collect a full years taxes upfront which it seems Continental is doing which does not seem off. You say the other companies are collecting 2-3 months but that doesnt sound right, it should be the next 2 or 3 tax payments which is then pretty much the same as Continental. In Nassau you pay taxes 4 times a year...2 for school, 2 for general.
The taxes you pay upfront at closing is not going to be deducted from your mortgage payment. They are going to take your yearly taxes, divide it by 12 and than add it to your house payment even though you are already paying taxes for the year at closing. They do this as a cushion for when taxes go up next year, which they will. Technically your taxes will go up September 2010, which is for the 2010-2011 tax year.
I would definetely call and double check with the other banks. Something seems off. And you dont always get the correct tax info from your loan officer unfortunately.
Message edited 12/20/2009 8:39:13 PM.
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| Posted 12/20/09 8:38 PM |
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SummerMom
Now a mom of 2!
Member since 6/07 4970 total posts
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Re: Question about mortgages and escrow
Thank you for the explanation. I'm still pretty sure I'm reading this right and that Continental is asking for more upfront than other banks do (my loan officer there TOLD me that Continental asks for 8 months while other banks ask for 6 or less).
I'm looking at the Good Faith Estimates from Continental and Chase right now. They both require one year of homeowner's insurance upfront, plus 2 months of homeowner's insurance to be put in escrow. Continental requires 8 months of taxes put into "reserve" for $6280 and Chase requires 3 months of taxes put into reserve for $2250. What I don't get is how putting $4000 more into the reserve in February is going to benefit me. All I can see is that I'll have $4000 less for furniture and new flooring when I move into the house, you know?
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| Posted 12/20/09 9:02 PM |
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ave1024
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Re: Question about mortgages and escrow
You will not be paying any more money with bank A over bank B regarding property taxes.
One bank may want to put more money into escrow RESERVES than the other... but those are just reserves.
When you sell your house, you will be getting back whatever reserves you have put in.
It's all relative.
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| Posted 12/21/09 12:13 PM |
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hanna7636
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Re: Question about mortgages and escrow
I am using Continental and I see the 8 months prepaid property tax but I see nothing about giving them back money for taxes. What number is that on the GFE? Also, I was told that I will be paying their tax rate until the new one starts (they have star and veterans). When that ends then I will pay the full amount. Also, they told me that the GFE they gave me was high and that my actual closing costs would be less.
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| Posted 12/21/09 1:16 PM |
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pjay
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PJAY
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Re: Question about mortgages and escrow
i seriously think i paid a full year of taxes up front w/ wells fargo.... and the nice this is i overpaid so i got a fat check at the end of the year b/c of the overpayment....
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| Posted 12/21/09 1:20 PM |
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SummerMom
Now a mom of 2!
Member since 6/07 4970 total posts
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Re: Question about mortgages and escrow
Posted by hanna7636
I am using Continental and I see the 8 months prepaid property tax but I see nothing about giving them back money for taxes. What number is that on the GFE?
It's not on mine either! I'm calling this afternoon to find out. I think they can't tell you for sure until you have a firm closing date, but on my other GFE's there was at least an estimate. So what I want to know is, is the 8 months on top of what we'd owe for pre-paid taxes when we move in?
I know that Continental isn't charging more than the other banks; it just seems that they want more money upfront for reserves that I'll get back when I move. I'd rather have the money in my pocket the whole time... I think... that's why I asked - I've never owned a home before so I don't understand the benefit of putting so much into reserve when I could use that money for furniture and bills.
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| Posted 12/21/09 3:18 PM |
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SummerMom
Now a mom of 2!
Member since 6/07 4970 total posts
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Re: Question about mortgages and escrow
Ok, I spoke to the mortgage broker at Continental. She told me that it's not the bank that requires a certain amount of money to be held in escrow for taxes, it's the TOWN. And any number of months given on a GFE is just an estimate of how much the town is going to ask for. She said that it's an issue to talk with my lawyer about, not with her.
Does this sound right? Because if so... every place I've looked into a mortgage with is pretty much exactly the same. Exactly. How do I choose? 
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| Posted 12/21/09 6:57 PM |
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csorisi
My 2 LOVES
Member since 11/05 1984 total posts
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Corinne
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Re: Question about mortgages and escrow
Posted by DavaDay
Ok, I spoke to the mortgage broker at Continental. She told me that it's not the bank that requires a certain amount of money to be held in escrow for taxes, it's the TOWN. And any number of months given on a GFE is just an estimate of how much the town is going to ask for. She said that it's an issue to talk with my lawyer about, not with her.
Does this sound right? Because if so... every place I've looked into a mortgage with is pretty much exactly the same. Exactly. How do I choose?
The TOWN shouldn't require anything and it seems the person you are talking to at Continental has no idea what they are talking about. There are people that do not escrow taxes and there is no way the Town can regulate that.
Based on what you said we will say that you are closing in February because that is your on or about date. Your first monthly payment to the bank will be April 1st.
Town Taxes--you will have to give the Sellers an adjustment from the day you close until June 30th. Because your first payment isn't until April and your monthly payment will include taxes the bank is probably going to take at least 4-6 months upfront for taxes. Between the time you make your first payment and July 1 when the taxes are due again you will have only made 3 payments worth of taxes--since taxes are paid every six months you would need at least 3 months worth of town taxes in your escrow to make the payment in july. Banks always take more than what is needed so that is why you will have to give them 4-6 months. Basically you will be paying about 10 months of taxes between the credit to the Seller and your escrows for Town.
School Taxes--The Sellers will be giving you a credit from Jan 1 to the day before you close--since this is the higher of the two taxes you will get some money back. The taxes will be due on April 1 and since that is also the date of your first payment the bank will require that the School taxes be escrowed with the title company. Meaning they will collected the April School tax amount at closing and pay it for you. In addition the bank is going to require 2-4 months worth of taxes to start your School tax account for when the bill comes out in Oct.
As I said in my previous post you always want more in your escrow account then they need--that being said you don't want them to hold too much money. If you think at any time that they are holding too much money you can call the bank and ask that they do an accounting on your escrow account and if they find they are holding too much you may get a check back. That being said you may get the check and find the next year they need more money so I always tell my clients if you get a check back from the bank don't run out and spend it they may ask for it back in a year because their account is short.
If you end up closing in March the months for town would increase but the School tax section will basically stay the same.
As for choosing a bank I would choose a bank you feel comfortable with and who you like working with--if nothing is different that is all you can go by. Also make sure you aren't paying any broker fees or points to get the rate you are getting.
If you have any questions-FM me. Im a real estate attorney and would be happy to help.
Good luck
Message edited 12/21/2009 8:39:16 PM.
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| Posted 12/21/09 8:36 PM |
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