Closing costs generally 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 really a separate category. Information on pre-paid expenses and escrows for MA mortgage closings is offered in this blog.
Pre-paid Expenses
Pre-paid expenses are fees payable at closing but technically cover an upcoming time frame. Common pre-paid charges are insurance and interest. Homeowners insurance consists of an annual premium that must be paid in advance. Some buyers pay the premium directly to the insurance provider 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, meaning that they cover a past month. For instance, if you buy a property January 15th, your first monthly payment would be due on March 1st, and it applies to the month of February. So there is no payment covering January 15th-31st. The interest for that period of time is billed at closing as pre-paid interest.
Escrows for Home Purchases
Escrows are funds held in a holding account, known as an escrow account, and withdrawn when needed. They are used to cover routine charges such as private mortgage insurance (PMI), real estate property taxes, and property insurance. Each month, included in the monthly mortgage payment, a certain amount is deposited 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 When PMI, taxes, or insurance payments are due, the funds withdrawn from the escrow account.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 reduces the difficulty of home buyers having to budget for the large bills. Secondly, the mortgage company ensures that the bills are paid, which protects their interest in the property. Escrows are not offered by all lenders, but it is frequently required for mortgages with lower down payments.
Information On Pre-paid Expenses And Escrows For MA Mortgage Closings
The amount of pre-paid expenses and escrows can vary depending on the season or time of month. Closing near the end of a month will reduce pre-paid interest. Pre-paid taxes and escrows will depend on the location and when tax bills are due. If minimizing funds required for closing is important, discuss the time frame with your real estate agent and mortgage broker. For additional information or assistance on the above “Information On Pre-paid Expenses And Escrows For MA Mortgage Closings”, you may contact Christopher Graves at Emery Federal Credit Union via phone at 781-759-1200 x22 or email at christopher.d.graves@gmail.com.
