Seller Prorated Tax Credit
If we decide to escrow your taxes and insurance, the lender will collect some money from you at closing. They’ll collect anywhere from 3 to 8 months worth of taxes to start your escrow account on a purchase. If it’s 8 months worth of taxes, that means property taxes are going to be due shortly after you buy the home.
In Arizona, taxes are paid in arrears, which means you only pay after you’ve lived in the home. Property taxes in Arizona are due in March and October.
What Does That Mean for Me?
Let’s say you’re closing in September. Property taxes are due October 1st. So right after you move in, the Lender is going to have to make up a 6 month payment.
Technically, the payment you’re making in October is for January-June. Since you wouldn’t have lived in the home that long, the seller is required to give you a prorated seller tax credit.
So the title and escrow company calculate how many days you haven’t lived in the home. Then they have the seller give you a tax credit for that time.
If you close in September, the title company will calculate 9 months of taxes. The seller then gives the buyer 9 months worth of taxes and the credit at closing.
We like to say this goes towards your closing cost. Realistically, if you get a large credit, the lender is also collecting a large amount in the escrow account. That’s because they have to pay taxes pretty shortly thereafter.
This helps people because it does offset some of the closing costs depending on the time of year that you close.
Give us a call to set up an in-depth look at your situation and let’s see if we can save you some money!