Why do I have to pay a whole year in taxes if I buy the house in August?

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My husband and I are looking for our first home. I’m being told by lenders that if I close on August 1, at closing I will still have to pay into an escrow account the taxes from Jan through August 1. But since the seller is the one who will actually pay those taxes since they lived there during that time, the seller will give me a credit for those months. I don’t understand this part. I asked if this meant they will take the amt off of the house or give me that money, he said no it’s just on paper. How does this work out. Thanks in Advance for your help.
I’m in TX if this helps.

5 Comments
  1. Reply
    Isaac B
    November 10, 2011 at 6:26 am

    Because the person before you doesn’t have to pay for it and leaves it up to the next owner.

  2. Reply
    David Beasley
    November 10, 2011 at 6:28 am

    Don’t worry! That is correct.

    The seller pays the taxes up to the day you record your deed. The tax $ s on your HUD shows as a debit on the seller side and a credit on your side.

    Best of luck!

  3. Reply
    Prophet 1102
    November 10, 2011 at 6:39 am

    The escrow account is like a bank account. When the owner sells the house – that escrow account is closed out and any money in it goes to the owner. (It’s not transferred from Lender A to Lender B.)

    So now you buy the house, and the new lender needs to collect the taxes for the previous months so they’ll have enough money to pay the tax bill when it comes in. The Tax Assessor doesn’t care about the previous owner, just the current owner.

    To make things right, the seller credits (gives back to you) the tax money they owed for the time they lived there.

    If you bought the house for $ 100,000. And the taxes for Jan – Aug were $ 800. The seller is actually going to give back $ 800 from their proceeds (they only receive $ 99,200). The $ 800 will go into your new escrow account.

    This all happens on paper so don’t worry about it.

  4. Reply
    saberhilt
    November 10, 2011 at 6:42 am

    Think of it kind of like double entry booking. The full year is going as a charge to you, but the previous partial year is going as a credit to you as well. It will all be resolved by the escrow account.

    The reason you have to pay the full amount of it now is that the seller won’t pay his portion until the house has been sold, so they need your money to cover the time between your buying and their selling. afterwards it will calculated in as a credit against any escrow fees you may be charged. If it’s big money, you might even see a little cash back.

  5. Reply
    Bernie's Mom
    November 10, 2011 at 7:17 am

    This will be subtracted from the Seller’s proceeds. For example… you buy the house for $ 200K and put a $ 10K deposit down. (now you would owe $ 190K at closing). The Seller’s portion of the current year taxes are $ 200, the total due (Seller’s proceeds) would be $ 189,800. So, essentially no money for taxes exchanges hands, it is calculaated on paper.

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