Closing costs commonly refer to costs charged by mortgage companies and third parties. Pre-paid costs and escrows are often included in settlement fees and are frequently mistakened as closing costs, but are actually a separate classification. Details of escrows and pre-paids for PA mortgage closings is included in this article.
Pre-paids
Pre-paid expenses are fees due at settlement but technically apply to a future expense. Common pre-paid charges are hazard insurance and mortgage interest. Insurance consists of a 12-month premium that must be paid up-front. Some home buyers pay the amount directly to the insurance provider prior to the closing, while others have it paid at closing.
Interest is another pre-paid charge. Mortgage payments are commonly paid in arrears, meaning that they cover a previous time frame. For instance, if you purchase real estate January 15th, your first mortgage payment may be due on March 1st, and it applies to the February time frame. Therefore, there is no bill to cover January 15th-31st. The interest for that period is charged at the closing and categorized as pre-paid interest.
Escrows for Real Estate Purchases
Escrows are monies deposited into a holding account, known as an escrow account, and dispensed when due. They are intended to cover regularly billed fees such as mortgage insurance, property taxes, and property insurance. Each month, as part of the monthly mortgage payment, a certain amount is placed into the escrow account. When the bills are due, the appropriate amount is withdrawn from the escrow account. This serves two purposes. First, it eliminates the hardship of borrowers having to budget for the large lump sum payments. Secondly, the lender ensures that the bills are paid, which protects their interest in the home. Escrows are not mandated by all mortgage companies, but it is typical for mortgages with low down payments.
Details Of Escrows And Pre-paids For PA Mortgage Closings
The amount of escrows and pre-paids may differ depending on the time of year in which you close. Closing close to the end of the month will normally reduce certain ones. Taxes and escrows will be based opn the area and when invoices are required. If minimizing funds needed at closing is a factor, discuss the time lines with your real estate broker and mortgage broker. For more assistance on the this topic Details of escrows and pre-paids for PA mortgage closings, you may reach Pedro Teixeira at FIT Credit via phone at 215-613-8130 or email at pteixeira.fit@gmail.com.