Escrow and Prepaid Property Taxes – How does it work?
Imagine this – you’ve just found your dream home in the heart of Dallas, and you’re ready to make it yours. But amidst the excitement of the purchase process, you’re stopped in your tracks by two intimidating words: Escrow and Prepaid Property Taxes. What does it all mean? More importantly, how do they affect your path to homeownership? At Supreme Lending DFW, we understand the confusion that can arise when navigating the ins and outs of real estate transactions, which is why we’re here to help simplify things for you.
The key to conquering any challenge is understanding, and that’s what we’re offering in this comprehensive guide. This guide is designed to help you understand the intricacies of escrow, property taxes, and how they intertwine during the property purchasing process. Through our Learning Center, we’re dedicated to providing you with the resources and knowledge you need to make informed decisions.
Understanding Property Taxes
Property taxes may seem complex, but they serve a simple, essential purpose: funding local government services like public education, law enforcement, and infrastructure maintenance. The amount you pay in property taxes is determined by your property’s assessed value and the tax rate set by your local government.
Escrow and its Role in Property Taxes
Escrow, a term borrowed from the French word “escroue,” means a deed delivered to a third party until a condition is fulfilled. An escrow account, therefore, acts as a secure holding area where funds (like property taxes and insurance) are kept until they’re needed. The homeowner makes regular payments into the escrow account, and the lender uses these funds to pay property taxes and homeowner’s insurance when they come due. This link provides a more comprehensive explanation of the benefits of escrow accounts for homeowners and lenders.
Escrow Analysis and Property Tax Adjustments
An escrow analysis is an annual review of your escrow account to ensure there’s enough money to cover property taxes and insurance. The purpose is to protect both you and your lender from the consequences of unpaid taxes or insurance. When the escrow analysis reveals a shortage or overage, your monthly escrow payment may adjust accordingly.
How Property Taxes are Handled at Closing
Closing, the final step in a home purchase, is where property taxes come into play. If the property taxes for the year have not been paid, the seller may be required to pay a prorated portion at closing, and the buyer may deposit a portion of the estimated future taxes into an escrow account. Escrow helps ensure that the taxes will be paid on time.
Escrow Taxes on New Construction
New construction homes bring unique considerations in terms of property taxes and escrow. Often, the initial property tax assessment is based on the land value before construction, leading to lower initial taxes. However, once construction is complete, a new tax assessment will reflect the value of the finished home, typically resulting in higher taxes.
Property Tax Paid During Refinance
When you refinance your mortgage, you may need to pay your property taxes as part of the closing costs or have them reassessed. Your lender may also adjust your escrow account balance to ensure sufficient coverage.
Working with a Mortgage Company in Dallas
While understanding escrow and property taxes is crucial, having the right mortgage company by your side is equally important. A reputable mortgage company, like Supreme Lending DFW, will not only provide the necessary guidance but will also ensure these aspects are properly managed, saving you from potential pitfalls and uncertainties.
In conclusion, understanding escrow and property taxes is essential to a smooth homeownership journey. They may seem complex, but with knowledge and guidance, they become less intimidating. At Supreme Lending DFW, we’re always here to help, offering you the support and resources you need to navigate your path to homeownership successfully. Reach out to us today – let’s take this journey together.