Closing costs commonly refer to costs mandated by lenders and third parties. Pre-paid costs and escrowed funds are also included in settlement statements and are frequently referred to as closing costs, but are technically a distinct classification. Definition of escrows and pre-paid expenses for MA home closings is provided in this blog.
Pre-paid expenses are amounts charged at settlement but actually apply to an upcoming expense. Popular pre-paid expenses are homeowners insurance and interest. Insurance has a 12-month premium that must be paid up-front. Some home buyers submit payment for the premium directly to the insurance provider before the closing, while some do so at closing.
Interest is another pre-paid charge. Mortgage bills are generally paid in arrears, so they apply to a past month. For example, if you buy a home January 15th, your first loan bill may not be due until March 1st, and it applies to the February time frame. So there is no payment to cover January 15th-31st. The interest for that period is billed at closing as pre-paid interest.
Escrows for Real Estate Purchases
Escrows are funds deposited into a holding account, referred to as an escrow account, and dispensed when due. They are set up to cover routine items such as mortgage insurance, real estate property taxes, and hazard insurance. Every month, as part of the monthly mortgage payment, a certain amount of money is directed into the escrow account. When the bills are required, the appropriate amount is taken from the escrow. This serves two purposes. First, it eliminates the difficulty of borrowers having to budget for the large lump sum bills. Secondly, the mortgagor ensures that the bills are paid, which preserves their interest in the property. Escrows are not required by all lenders, but it is frequently required for loans with small down payments.
Definition Of Escrows And Pre-paid Expenses For MA Home Closings
The amount of escrows and pre-paids will differ depending on the time of year in which you buy a home. Closing close to the end of a month will typically minimize pre-paid interest. Property taxes and escrows will be based on the community and when bills are required. If reducing cash needed at closing is critical, discuss the time lines with your real estate professional and mortgage consultant. For other resources on the above Definition of escrows and pre-paid expenses for MA home closings, you may contact Bradford Pratt at REMAX on the Charles via phone at 877-481-5544 or email at firstname.lastname@example.org.