closing costs???????

i was reading another post....

i know that closing cost can be $10-15k...
under the list it had property tax as $5k in the example....

does that mean you pay the property tax for that current year when you buy the house? im confused thanks!

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Posted by butterfly20

i was reading another post....

i know that closing cost can be $10-15k...
under the list it had property tax as $5k in the example....

does that mean you pay the property tax for that current year when you buy the house? im confused thanks!

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You pay real estate taxes at closing in two ways.

1 - as an adjustment to the seller. If you close on a house today, the seller has already paid real estate taxes through November 30th because on May 1st he was given a real estate tax bill from the town and s/he paid this for the period May 1st through November 30th. So you have to give him an adjustment for the period October 23rd through November 30th.

2 - establishing an escrow account. Some mortgage companies require that you open up an escrow account with them in which you pay a fixed amount monthly toward your real estate tax bill. This money goes into an escrow account - the real estate tax bill goes directly to the bank and they pay the bill on your behalf twice a year. At closing, you are required to put into the escrow account, 6 months worth of real estate taxes, as a cushion.

A reminder - when filing your return, you are allowed to deduct on Schedule A the amount of real estate taxes PAID to the government or the seller. This means that the adjustment at closing described in number 1 is deductible. Also deductible is any amount paid by the bank on your behalf in 2003. You can NOT deduct the amount that you putting into escrow because this amount is still technically yours and hasn't been used to pay the tax - its whats in the escrow account that the bank uses to pay the tax.

Make sense? Feel free to ask any other questions.

Also, closing costs can vary but a huge difference is the establishment of an escrow account because the bank requires a 6 month payment made at closing. When my fiance and I closed on our house, we decided against an escrow account. This saved us from having to lay out another 6 months worth of taxes at closing and we were able to have lower closing costs. The consequence: The real estate bill comes directly to us and we have to pay it but its only twice a year so we dont find it to be a big deal. But it means that instead of being forced to deposit a set amount each month which goes toward the taxes, we have to make sure we have all of it when its due. Careful planning should keep you okay if you decide the same route.

we have to pay $1500 of our taxes at closing...but we are not required to do an escrow after this



also check out credit unions...mine has a $1500-2000 flat closing fees!!!!

most closing costs are usually fees charged by title companies, appraisals, bank attorneys, etc that are for the most part pretty consistent.

variable changes are caused by the following:

1. Real Estate Taxes - amount paid to the seller for the taxes already paid by them pertaining to the time frame you are in the home - depending on what time of the year you close, this amount can vary

Deductible on your return

2. Prepaid Interest. If you close on a home on October 26 and have set up to have mortgage payment be made on the 1st of each month, you're first mtg payment would not be due until Dec. 1st and it would include interest from November 2 - December 1st. At closing you have to pay interest from the closing date until November 1st. So obviously if you close on the 26th of October, then you'd have to pay 5 days of interest - if you close on October 6th, you'd have to pay 25 days of interest

Deductible on your return

3. Escrow Accounts - usually 6 months worth of taxes and insurance required to be put into escrow - escrow accounts are usually an option

Not deductible

4. Mortgage Tax - always .75% of your mortgage - the higher the mortgage, the higher the tax.

Not deductible - added to basis

5. Points, also called Loan Origination Fees - usually paid to reduce your mortgage

Deductible on your return

Best time to close would be the end of the month in which the seller has paid the latest real estate tax bill - this will result in the lowest closing costs.