Usually the mortgage company requires a "cushion" be paid in addition what the monthly calculated deposits should be. That way, if there are any changes in amounts, the mortgage company can use that cushion to cover it. Annually, they will do an escrow analysis to see if you need to replenish that cushion. When we used to have a mortgage, my lender would send me a letter detailing what they'd paid and tell me what the "cushion" shortage was. I could choose to pay the shortage back in one lump sum and keep my monthly payment the same or they would roll it into my payment going forward and my monthly payment would go up.

Using real numbers, your mortgage company will likely require you to put +/- $8,000 in escrow so that when July 1st comes, they will have about $14,000 (the $8,000 you initially put in plus the $1,000/month you'll pay in Feb-July).

This is too local of a question to ask here. What state are you in?

In my area, we don't even have separate district, township and county so I could never answer your question.

In NC, we pay just the current property taxes into escrow which in my case are $3k a year. Doesn't matter that in September it will go up to $10k a year. The settlement from my bank which I saw yesterday has a way low estimate of property taxes. In my area, when the tax bill comes due, the escrow will get adjusted and we will play catchup in 2020.

This is my area and is not likely the same as your area.

Mike-Every area is different. Does your county only have the one payment date per year? A lot of counties have one date for an annual payment and 2 dates for half payments....in which case the mortgage company will make the 2 payments. For example, in my area, we can pay next years taxes in December in a lump sum, or half the payment becomes delinquent in April next year, and the other half in September. 2 payments change your calculation dramatically. Also, are you sure that the assessment that is done in March is for that year? In my area, the tax amount for the next year in set the end of this year.

If the bank is estimating that they will need $12,000 for taxes due July 1, they will need the money there prior to June 1 as they need to make sure they aren't late. Many mortgage companies send their escrow checks through a secondary company, so it really needs sent out 30+ days ahead of time.

Your first payment will likely be March 1st. So you have 3 months payments going into escrow before they send the payment. So, $3,000 in escrow for taxes will come from your payments.

To make sure that the bank doesn't have to worry about coming up short in your escrow account, they will also keep a (roughly-depending on bank) 3 month cushion. This cushion needs to be there at the beginning of the escrow account, and your account gets analyzed annually to recalculate the cushion and send back funds if they are holding too much. So they bank will want $3,000 at settlement for the cushion.

In addition, the bank needs the different of the annual tax payment less the monthly payments made leading up to the payment being sent out. So $12,000-3,000=$8,000.

So when taxes get calculated and sent out, you will have (roughly!) $15,000 in your escrow account. If taxes come in at $14,000, the bank has enough to make the payment, and will send you a notice that your payment will be increasing if you do not put in $xx into the escrow account.

Property Insurance works similarly. Don't forget to add 3/12 of the annual premium when calculating how much you will need at settlement.

The 3 months is pretty standard, although different lenders do calculate cushions differently.

Thanks for the replies. So I should have mentioned the following:

1. In the state of Pennsylvania, we pay ahead one year. If a locality bills on January 2, 2019, it would cover the home from 1/2/19 to 1/2/20.

2. We have school, county, and locality taxes. They are almost always due at different times.

3. Most areas have early payment discounts. That's unrelated to this topic, though.

-Mike

Good to know. My calculation should get you fairly close. Most taxes are paid somewhat in arrears. Unless you pay on 12/31/18, for 2019, you are paying part of your taxes after the services were used and part before they are used. In my area, we pay the 2018 taxes in April and Sept 2019.

Regarding your school, county, and locality taxes, look at them as additional escrow items. Just the same as my tax payment has 2 due dates, you just have multiple due dates of various amounts. To give you an idea of how the settlement amount changes if you have $6,000 due in July and $6,000 due in November, The amount required for settlement would be closer to $7-8,000 (not calculating property insurance).

Have you applied for the final loan yet? You should have get an estimated closing cost sheet when you do. Or your lender should be able to calculate it pretty quickly from their guidelines, but Monday is a holiday.

Hi, Mike,

Your closing agent or lender should be able to give you an idea what you'll need to pony up for various escrows including taxes and insurance. In my experience, the escrow amounts will be adjusted annually based on actual cash outflows from the account.

So now that I think about it, it should be pretty simple: in a state where the property owner pays one year ahead in taxes, the combination of settlement day tax escrow account capitalization and the interim tax bill will be equal to one year’s taxes. Add let’s say 3 months of padding to that.

B Carey: not sure if "capitalization" is the correct word either.

Yes, if taxes are due soon after settlement, you bring more escrow tax money to the settlement table, but the interim tax bill will be lower. If taxes are a while after settlement, the opposite is obviously true: you bring less escrow tax money to the settlement table, but the interim tax bill is higher.

I do my own escrow. You need to arrange it with your lender. When I get the bill, I pay it. I set the taxes aside in a savings account on a monthly basis.

In the past I've also had home loans that allowed me to do my own escrow. It meant I had to keep track of taxes and insurance and make sure I paid it all on time, but that wasn't really that difficult.

If the tax estimate is way off when you close, or taxes go up a lot when they reassess the property, the bank will find the problem during the escrow account review later in the year. They will then offer you the option to pay the difference in cash, or to increase the monthly escrow account payment for the next year to make up the shortage. Neither solution is good if you don't have the extra funds to pay it.

Bruce

Do your own if you have equity of 20% or more. Otherwise I believe most mgtg companies require their escro.

That's INSANE taxes!!!!!! MUST be UNION in your area!! That's the way it is in the NE. I've seen it numerous times up there. What is the value of your house?

MUST be UNION in your area!!"

What does "UNION" have to do with property taxes????????????????

@millworkman, I believe the term non sequitur applies to robin's post.