How many months Property Tax should be paid in advance as reserve to Lender?

Sangita P asked:

When you close the house, how many months of property tax should be paid in advance as reserves to lender? Does it depend on the lender? If lender says 5 months, can I negotiate with closing attorney?

Comments (5) Posted in Renting & Real Estate

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5 Responses to 'How many months Property Tax should be paid in advance as reserve to Lender?'

iceman - February 27th, 2009 at 2:13 pm
Yes it depends on the lender.

Some make you pay a full year, some make you pay 6 months, some dont require you to pay anything.. except prepaid taxes that the seller paid.

I think the norm is 6 months. Thats what we had to do and thats seems the most fair since normally taxes are paid 2 times a year. But it can vary.
magnolia - March 2nd, 2009 at 1:31 pm
I don’t think you can negotiate. The lender does pretty much what they want to do. They are trying to protect themselves. I’ve seen them as as little as 3 months and up to a year. So if they ask for 5 months, that’s reasonable. You’ll settle up when you pay your taxes at the end of the year.

If you want to avoid this, you’d have to put 20% down on the house to be able to keep property taxes and insurance from being a part of your monthly mortgage payment.
rlloydevans - March 5th, 2009 at 8:05 pm
The requirements are whatever is insisted on by the lender. The closing attorney has absolutely no say or negotiating position. The closing attorney is merely complying with the wishes of the parties, he has no influence over the wishes, except possibly to point out if something you are doing is illegal or impossible in some way.

Most lenders require between 4-12 months prepayment of taxes and insurance. If you are getting a standard or “conforming” loan, there is probably no leeway for negotiation on this, The reason is these loans are required to be identical to each other, because at some point the loans will be combined or “bundled” together to be sold to other investors. there can be no deviation in the type of terms on these type of loans.

However if you are getting a “nonconforming loan” there may be room to negotiate the escrows. Contact the mortgage broker or lender directly and see what you can do. Another point, if your credit is very good, you might have some more room to negotiate. However, if you are subprime in any way than there is almost no chance, in the current lending environment, to get concessions from lenders. They are simply to frightened of potential foreclosures, and you should feel happy just to get the loan.
glenn - March 8th, 2009 at 11:20 pm
Actually there is a very complex calculation required by law in the US. Roughly they will require enough money in the escrow that they can pay the taxes a month early even if you haven’t paid that months payment. (so there is always a cushion).

On your closing statement you will see a complex calculation then an adjustment. It is following that RESPA regulation.
Mortgageman - March 11th, 2009 at 6:01 am
By law, the lender can only keep a 2 month cushion. Otherwise, they will collect enough to supplement your monthly escrow to be able to pay your taxes when they come due. An escrow account is not a way for the lender to make money!