Closing costs typically refer to fees charged by mortgage companies and third parties. Pre-paid expenses and escrows are also included in closing settlement statements and are sometimes referred to as closing costs, but they are technically a distinct category. Definition of pre-paid expenses and escrows for New Hampshire real estate closings is provided in this article.
Pre-paid expenses are items that must be paid at closing but technically cover a future period of time. Popular pre-paid charges are insurance and interest. Homeowners insurance consists of an annual premium that must be paid up-front. Some buyers submit payment for the premium directly to the insurance company in advance of the closing, while some do so at the closing. Interest is another pre-paid cost. Mortgage payments are normally paid in arrears, so they cover a past month. For example, if you purchase a home January 15th, your first mortgage payment would not be due until March 1st, and it covers the month of February. So there is no payment to cover January 15th-31st. The interest for that period of time is due at the closing as pre-paid interest.
Escrows for Home Purchases
Escrows are payments deposited into a holding account, known as an escrow account, and disbursed when needed. They are set up to cover regularly billed charges such as private mortgage insurance (PMI), real estate taxes, and property insurance. Every month, as part of the regular mortgage payment, a certain amount is directed into the escrow account. When PMI, taxes, or insurance payments are due, the funds withdrawn from the escrow account. This accomplishes two goals. First, it removes the hardship of home buyers having to plan for the large bills. Secondly, the lender knows that the bills are paid, which preserves their interest in the home. Escrows are not mandated by all mortgage companies, but it is common for mortgages with small down payments.
Definition Of Pre-paid Expenses And Escrows For New Hampshire Real Estate Closings
The amount of pre-paid expenses and escrows can vary depending on the season or day of month. Closing close to the end of a month will minimize pre-paid interest. Pre-paid taxes and escrows will depend on the community and when tax invoices are due. If minimizing funds required for closing is critical, discuss the time frame with your real estate professional and mortgage broker. For additional information or guidance on the above “Definition Of Pre-paid Expenses And Escrows For New Hampshire Real Estate Closings”, you may reach Customer Service at Accurate Title via phone at 800-639-4405 or email at firstname.lastname@example.org.