Your mortgage payment is the sum of the monthly amount owed for the principal and interest on your home loan. It also includes monies collected to pay your homeowners' insurance and property taxes. The monies for taxes and insurance are placed in an escrow account. After monies are collected all year, your mortgage company pays your insurance company and your taxes for you. With a fixed interest rate and term on your home loan, your principal and interest should not vary. However, the cost of your insurance or taxes could.
In the case of new home construction, the tax paid at the time the home is under construction, is based on vacant land. Once a completed home occupies that land, the tax value increases substantially. That may mean that your total mortgage payment on a new construction home, is based on the vacant land tax amount. Once the property is re-assessed, the tax authority reports the increase to the mortgage company. This can result in a shortage in your escrow account because the amount of money collected through the year, is no longer sufficient to cover the tax bill. Likewise, insurance costs may escalate resulting in a shortage.
An overage in your escrow account may occur, for example, if you found homeowners insurance at a cheaper rate or your tax value has decreased. In that case, the mortgage company will send you a check in the amount of the overage, or give you the opportunity to put it toward your principal.
Coastal Loans, Holiday Builders' Lending Partner collects estimated improved property taxes to avoid putting buyers of new construction homes in an escrow shortfall. Coastal's Loan Originator will go over this portion of the financing with the homebuyer during the loan processing. Be sure to ask your lender, especially in new construction, about the amount of tax that will be collected and make sure the amount collected, is based on the improved value of the land. Click here to learn more about Coastal Loans.