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Summary: We receive a lot of questions from borrowers regarding the prepaid items that go into their escrow reserves. Where do these prepaid items come from, and how will they affect your bottom line at closing? Here’s an explainer that addresses these and other questions.
Escrow accounts are a common source of confusion among home buyers, as well as homeowners who are refinancing their homes. People usually want to know three things, above all else: What are prepaid items? How are they calculated? How much will I have to pay at closing?
You can think of an escrow account as an easy way to manage (and pay) the property taxes and homeowners insurance premiums associated with your home. Basically, you’re setting money aside for these real estate-related expenses ahead of time, so you don’t even have to think about it when they become due.
When you make a monthly mortgage payment, part of it goes to the principal and interest that are due for that month — and the rest is used to fund the escrow account for taxes and insurance.
Prepaid items are different from other closing costs because you’re essentially paying for something that hasn’t happened yet — but will happen. But prepaids are paid on closing day in most cases, so you’ll want to prepare for them in advance.
Which leads to another common question: “How much money do I need to come in with at closing, to cover my prepaid items?”
This will partly depend on where you’re buying a home. The tax rates and other costs associated with prepaids can vary from one state to the next. If you work with Sammamish Mortgage, you can rest assured that we’ll give you a detailed list of prepaid items and other closing costs, well in advance.
The escrow account is usually set up when the home buyer closes on the mortgage loan (or possibly before that). The initial amount needed to fund the account will depend on the property taxes, the insurance premiums, and other factors.
Property taxes are one of the prepaid items that go into the escrow fund. They’re usually included within the monthly mortgage payment, and paid into escrow to cover future payments. These prepaid items can vary by location due to differences in tax laws and rates.
* These numbers were obtained from the Tax Foundation in June 2020.
Learn more: Please let us know if you have questions about prepaid items for escrow and closing in Oregon, Washington, Colorado or Idaho. We can even present you with a closing cost estimate so you can plan accordingly.
Will you need mortgage financing to buy a home in Washington State? We can help. Sammamish Mortgage has been serving buyers across the Pacific Northwest since 1992. We offer a wide variety of mortgage programs with flexible qualification criteria. Please contact us today with any financing-related questions you have.
Besides the down payment that you’ll have to put forth when you take out a mortgage to buy a home, there are also closing costs that buyers will have to pay.
Summary: How does the real estate escrow process work in Oregon? How long does it take to close on a house, once I have a contact? These are two of the most common escrow-related questions among Oregon home buyers, and…