carebear
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jamespowers said:I can understand that. I was just pointing out that property tax to the well informed is a real pain. I can just imagine how it would be to those who have no idea where to start. I really wouldn't consider property taxes part of the loan. Why pay interest on taxes?! :eusa_doh: Just pay the property tax on your own so you can see the local and state government do crazy things like raise the tax 15% in one year. :eusa_doh: I guess I am spoiled because property tax can only increase 2% per year here---maximum. 15% and higher yearly increases in the 1970s prompted the change here---Thank God.
Regards,
J
Oh, they have nothing to do with the loan, but they are part of the monthly/yearly cost of the property itself. For those people who want to pay their own taxes and interest it can be done. In no event are you forced to borrow your tax payment.
However, in most loans over 80% LTV the investor (Fannie/Freddie/Ginnie and most private money) require that you pay each month's portion of the yearly taxes and insurance into an escrow account, held by the loan servicer, to ensure taxes and insurance are paid. Insurance obviously so the property is covered and the loan can be repaid in case of loss. The taxes to prevent non-payment of taxes (say you forget or blow the money in Vegas) and thus a tax lein being placed on the property (which would affect the lender's ability to recoup their investment in case of foreclosure).
So, whether required by your particular loan program or not, by law when I give you a Good Faith Estimate I include the (probable) monthly taxes and the monthly cost of your homeowner's insurance so you can see what portion of your monthly income is, or should be, planned for housing expenses.
Even with higher LTV loans, if you can demonstrate financial ability and responsibility you can ususally get the required escrow waived so you can keep the money earning interest for you and just pay yearly when due. A few states are attempting to make the servicing company pay you the interest on your escrow account, so they don't get the profit from holding it for you. That opens a can of worms since the cost of mortgages currently includes that interest as part of the servicer's renumeration for managing the account. Take away the interest on the escrow funds and mortgage rates will rise to absorb that lost income so the servicers can still be paid.
The secondary market, which arose due to the Depression and to make home ownership possible for all, not just the wealthy, is an intriguing beastie.