Most prospective homebuyers know that mortgage financials can change depending on location, your bank, your home state, and other common factors. Some less well-known differences can occur when looking at newly built properties versus existing homes that are just changing hands. If you are considering a mortgage on a newly-built home, escrow is one area that may be different than expected. Let’s take a look.
Just as a refresher, escrow accounts can differ depending on the state that a property is located in, but generally they are quite similar. These impound accounts are held by a third part and set up by mortgage lenders to pay some of the expenses involved in real estate ownership— usually property taxes and homeowners insurance fees. After signing a mortgage, your escrow balance will increase each month so that at the end of each year it holds all of the funds for these expenses. These stipulations will all be spelled out in your contract when opening an escrow account.
The wrinkles can come in escrow when mortgages involve newly-built homes. The main reason for this relates back to an old expression, “moving at the speed of government.” Your property taxes have to be set by the municipality that you live in, usually a county or a town or a village. A municipal assessor has to estimate the value of a property in order to calculate how much will be owed in taxes. If you have ever been to the DMV, you might know that government work tends to happen quite a bit slower than in the private sector—the same goes for assessment. We’ll get to that next.
Before a new property gets a full assessment (which can take some time), mortgage holders are still going to want to contribute to their escrow funds. In order to make accurate contributions, a formula will be used to estimate the value of a property. The estimated value from this equation aims to give homebuyers an approximation of the money they need to set aside for property taxes. The word here is key, estimate. These numbers can shift significantly after formal assessments are performed. The best thing you can do as a home buyer is to be aware of possible changes. In the event that escrow contributions are higher than necessary, there can be a refund.
Another important point to think about is timeframe. Mark out on a calendar when your closing date is, your escrow payments, a future assessment, and your tax schedule. Having these dates on a timeline will give you the ability to plan ahead and prepare for any changes in escrow that might occur. If your mortgage escrow is initially assessed at a lower value, or potentially on a lot only, then this plan will make adjustments much easier.
Have questions? Contact Mortgage Maestro Group at 303-779-0591 for more information!