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Taxes & Insurance Questions & Answers

California Mortgage & Home Equity Loans, Co.

Q. What do property taxes cover?
A.It often depends on the area’s tax base. In areas with a predominantly residential property tax base, tax dollars go toward everything from the fire department and schools to the town library. In other areas, industry and commercial property take on more of the tax burden.

Q. Which closing costs are tax-deductible?
A. Three closing costs are tax-deductible in the year of the sale: loan points (one point equals 1 percent of your loan amount), prorated mortgage interest, and prorated property taxes. After that, your mortgage interest and annual property taxes are the only deductible costs. For a refinanced loan, points must be deducted over time. Consult your tax advisor for advice about your situation.

Q. How are the funds from my escrow account used?
A. The funds from your escrow account are used to pay property taxes and insurance. The payment is called an escrow payment, and a mortgage servicer withdraws the money.

Q. Can I ignore my property tax bill if I have an escrow account?
A. Just because you have an escrow account does not mean that you can relinquish responsibility for paying your property taxes and insurance bills. Check the statements you receive to confirm that your bills are being paid on time.

Q. What type of insurance do I need prior to closing?
A. You will need proof of homeowners, title insurance, and possibly flood insurance (if applicable) prior to closing. If Private Mortgage Insurance is required, your lender will make the arrangements.

Q. Is Title Insurance always necessary?
A. Yes. The title is the formal document that establishes ownership of property. Title insurance is necessary to make sure the title of the property is clear of liens, easements or other claims that could affect the transfer of the title. Title insurance covering the lender is always required. Owner’s coverage is available for a small incremental cost and is highly recommended.

Q. How will I know whether I need Private Mortgage Insurance?
A. In most cases, if your first mortgage amount is greater than 80% of the property’s value, the lender will obtain Private Mortgage Insurance (PMI) to safeguard its investment against the possibility of default. PMI premium is collected monthly along with the mortgage payment.

Continue reading for more information on “Assessing Taxes” that you will need to know about in order to be better prepared for a California Mortgage Loan!


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