Closing costs usually refer to fees mandated by lenders and other parties. Pre-paid expenses and escrowed funds are also included in settlement fees and are frequently referred to as closing costs, but are technically a distinct category. Overview of pre-paid expenses and escrows for Bennington mortgage closings is provided in this article.
Pre-paid expenses are charges due at closing but actually cover a future bill. Popular pre-paid charges are hazard insurance and interest. Insurance has a 12-month premium payable in advance. Some home buyers submit payment for the amount directly to the insurance provider before the closing, while others have it paid at closing.
Interest is another pre-paid item. Mortgage payments are typically paid in arrears, so they apply to a previous month. For instance, if you buy a home January 15th, your first monthly payment may be due on March 1st, and it covers the February time frame. So there is no bill to cover January 15th-31st. The interest for that period of time is due at closing and categorized as pre-paid interest.
Escrows for Real Estate Purchases
Escrows are payments deposited into a holding account, referred to as an escrow account, and disbursed when due. They are used to cover recurring items such as mortgage insurance, property taxes, and hazard insurance. Each month, included in the monthly mortgage bill, a certain amount is deposited into the escrow account. When the bills are due, the money is taken from the escrow account. This accomplishes two goals. First, it reduces the difficulty of borrowers having to budget for the large bills. Secondly, the mortgage company ensures that the payments are made, which protects their interest in the home. Escrows are not mandated by all mortgage companies, but it is common for loans with lower down payments.
Overview Of Pre-paid Expenses And Escrows For Bennington Mortgage Closings
The amount of pre-paid expenses and escrows may vary based on the time of year in which you buy a home. Closing near the end of a month will normally reduce pre-paid interest. Pre-paid taxes and escrows will depend on the area and when invoices are due. If reducing funds needed at closing is important, discuss the time lines with your real estate agent and mortgage consultant. For additional assistance on the above Overview of pre-paid expenses and escrows for Bennington mortgage closings, you may contact Troy Richardson at Maple Leaf Realty via phone at 802-447-3210 or email at firstname.lastname@example.org.