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Are prepaid property taxes considered to be one of the buyer's closing costs?

I am buying a house in WI and do not want to set up an escrow account for property taxes and prepay a portion at closing unless this amount is considered a closing cost that can be credited back with the seller's contribution set forth in the contract. Does anyone know if this prepaid amount is considered a closing cost?
  • August 15 2010 - Kenosha
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Answers (13)

Taxes are not closing costs, they are " prepaids". Your contract should read seller to pay xxx amount towards the buyers closing costs and prepaids. What type of loan are you getting, FHA, Conventional, VA, etc and how much down payment? 
  • August 15 2010
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My financing is conventional with a 20% down-payment.

thank you
  • August 15 2010
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Your 2010 Taxes will be prorated at closing.  If you are closing on your home in August, the seller is responsible for the amount due from January - August as they have occupied the property.  You will be given a credit at closing for the prorated amount BUT your 2010 tax bill will not arrive until December at which time you will be required to pay the full amount.  Most banks will require that you escrow for taxes although some will allow you to pay it on your own if you put atleast 20% down. Speak to your loan officer on your options.  
  • August 15 2010
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Usually under 20% down requires an escrow account. Some banks will allow the borrower to not set up an escrow account if they are putting down 20% or greater. you should ask your loan officer if this option is available. As far as what the seller can pay, most contracts state the seller to credit the buyer with 3% of the selling price towards closing costs and prepaids. usually the closing costs are paid first and what is left over is credited towards the prepaid accounts.
  • August 15 2010
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They both explained it well! Since Mini is in Wisconsin she knows the tax bill comes out in December and since you are going conv and 20% down, you are good to go. You will most likely be charged .250 of the loan amount to waive an escrow fund unless it is factored into the rate. How much are the closing costs and what is the seller concession amount?
  • August 15 2010
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Yes, I the proration of the taxes. I have the option to set up an escrow account for the property taxes and the bank is pushing for it. I am considering it only if the seller's contribution covers the initial amount of about $700.00. Total closing and prepaids are estimated to be $3100 for this purchase. The contract reads as follows:Seller's Contribution: Seller shall give Buyer a loan cost credit at closing in the amount of $ 3,000.00
(Zero if left blank)
to assist Buyer in purchasing the Property. This is exclusive of any loan fees indicated on the offer to purchase.

Should I insist on an addendum to clearly state that the seller's contribution is to be applied to prepaids?

Also- It is not required in WI, but should a buyer always solicit a lawyer in a house purchase?

Thank you everyone!
  • August 15 2010
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Since you currently have a written purchase contract in place, I assume you have an agent representing you.  Your Realtor should address any concerns you may have.  I have been in Real Estate for 7 years and so far, none of my closings had a lawyer involved.  The agents and the Title companies take care of everything.. However, the decision to hire a lawyer is up to you and we, as Realtors cannot talk a client out of using one.  Good Luck with your home purchase!  
  • August 15 2010
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Seller shall give Buyer a loan cost credit

That is the rub, IMHO. Prepaid interest, an escrow acct, and a homeowners insurance policy are not " loan costs " but they are settlement costs. Even if the contract verbage is normal and usual, and most sellers would not challange it if using towards prepaids, I would have it spelled out to read the $3000 seller concession is to be applied towards closing costs and prepaids. An Atty will cost around $300-$400 to review the docs. 
  • August 15 2010
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Thank you Mini. I thought maybe I was being cheap in regard to not obtaining a lawyer. I do trust my agent and my loan officer but also know that ultimately it is me signing on the dotted line. My agent believes that my contract's clause about the seller's contribution (see previous post) covers closing costs and prepaids. Do all of you agree or should I spell it out in an addendum while I am in negotiations. The home inspection was yesterday and I would like to start the loan process this week.

Thanks again!
  • August 15 2010
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spail chek - challange = challenge
  • August 15 2010
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Thanks Clay- I am going to insist on it being spelled out (closing costs & prepaids) If this is already everyone's understanding then it shouldn't be a problem. I don't want to be at closing and find out that I committed to an escrow account that I don't really favor and need to fund it myself.

Thanks everyone- have a great day!
  • August 15 2010
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I understand your concerns, but by law, your agent needs to address the concerns.. I cannot give any advice on what needs to get done towards this contract.  You trust your agent and the loan officer so ask lots of questions!  There are NEVER any dumb questions in Real Estate or in life for that matter! Again, Good Luck!  
  • August 15 2010
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Are you putting 20% down. You may not have the option of waiving escrow if you are doing an FHA loan or are doing a conventional loan with less than 20% down. Ask your lender. They should be able to answer all your questions.
  • August 16 2010
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