Jeff’s Carlsbad Blog for First Time Home Buyers


What to Know About Property Taxes When You Buy

Posted in Financial,Taxes by Jeff Dowler on December 10, 2008
Tags: , , ,

One of the big expenses you will have as a first time home buyer will be property taxes.

As part of your due diligence during your search, and once you have an accepted offer, you should be sure you understand how much tax you will be paying so you are not caught unawares.

An estimate of expected taxes should be included when you are getting pre-approved (I would use a fairly aggressive amount) so you truly know the amount you can borrow and can afford based on your budget. Property taxes will amount to thousands of dollars per year.

When you are going to close on your new home, a large portion of the closing costs might be your property taxes. You will be required to pay a pro-rata portion of these property taxes upfront (called an IMPOUND) so that when the semi-annual taxes are due (in California they are paid twice per year) your mortgage company has enough money to pay them.

For example, if you close in December the next tax payment will be due in only a few months, and the mortgage company will not be able to collect enough through your monthly payments in order to pay the full tax payment. So they collect money upfront to ensure they have enough.

The other reason that this is done is that your FIRST mortgage payment is generally not due the month after you close but the second month afterwards. But don’t think you are getting a free month. The lender will collect the pro-rated interest from the time of your closing until your first monthly payment upfront too.

Here is the schedule of impounds that you likely will see and can be expected to pay – keep in mind that this may vary with the lender, who might require more upfront money. Make SURE you know what this amount is before closing so you can plan for your closing costs. Your lender can tell you what upfront money you will need. (this table of information was obtained from a colleague of mine, Michelle Elkins at Nations Title in Carlsbad)

Month of Funding

First Monthly Payment

Tax Impound

November

January

5 months

December

February

6

January

March

7

February

April

2

March

May

3

April

June

4

May

July

5

June

August

6

July

September

7

August

October

8

September

November

9

October

December

4

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: