Closing costs generally refer to fees required by mortgage companies and third parties. Pre-paid expenses and escrowed funds are also included in settlement fees and are often referred to as closing costs, but are really a distinct classification. Information on escrows and pre-paid expenses for MA loan closings is offered in this blog.
Pre-paid expenses are charges charged at settlement but technically apply to a future time frame. Common pre-paid expenses are hazard insurance and interest. Insurance includes a 12-month premium that must be paid up-front. Some home buyers submit payment for the premium directly to the insurance company in advance of the closing, while others have the bill paid at closing.
Interest is another pre-paid charge. Mortgage bills are normally paid in arrears, meaning that they apply to a previous month. For example, if you buy a property January 15th, your first monthly bill may be due on March 1st, and it covers the month of February. Therefore, there is no bill to cover January 15th-31st. The interest for that period is due at closing and categorized as pre-paid interest.
Escrowed Funds for Home Purchases
Escrows are payments deposited into a holding account, known as an escrow account, and disbursed when due. They are set up to cover routine fees such as mortgage insurance, real estate taxes, and property insurance. Each month, included in the regular mortgage bill, a certain amount is directed into the escrow account. When MI, taxes, or insurance payments are due, the appropriate amount is withdrawn from the escrow account. This serves two purposes. First, it eliminates the hardship of borrowers having to save for the large fees. Secondly, the mortgage company knows that the bills are paid, which preserves their interest in the property. Escrows are not required by all lenders, but it is common for mortgages with lower down payments.
Information On Escrows And Pre-paid Expenses For MA Loan Closings
The cost of pre-paid expenses and escrows can vary depending on the month in which you buy a home. Closing close to the end of the month will typically reduce certain charges. Pre-paid taxes and escrows will depend on the area and when statements are issued. If reducing funds needed at closing is important, discuss the time lines with your real estate broker and mortgage advisor. For additional guidance on the above Information on escrows and pre-paid expenses for MA loan closings, you may contact John Martino at Martino Law Group via phone at 781-606-9002 or email at JohnMartino@martinolawgroup.com.