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Estimates for Property Taxes and Insurance Are Often Wrong.

Another common mistake is similar to interest errors, and that is miscalculating property taxes. Exact property taxes are typically available only through public records or through tax data published in a local multiple listing service. But most experienced loan officers know the average tax rates for the area and can give you a solid quote.

The same goes for hazard insurance. A standard estimate of hazard insurance is about 1/2 percent of the mortgage balance, but of course the exact number will come not from the loan officer, but from the buyer's chosen insurance company. Fair enough, mistakes can be made when estimating, but when it comes time to calculate the amount to be placed in escrow or impound accounts, that amount will be compounded by the mistake.

Escrow accounts, sometimes called impound accounts, are deposit accounts established by the home buyer to pay the annual property tax bills and insurance premiums. Depending upon the lending institution, a lender may ask for a couple of months' worth of insurance and taxes to get the impound account started.

When an impound or escrow account is set up, the borrower adds 1/12 of the annual tax and insurance payments to the mortgage payment each month; as those bills become due the following year, the lender takes those deposited funds and pays the tax bill and the insurance premium on behalf of the homeowners. It's quite a good deal, actually: You never have to worry about whether the insurance is paid up or whether you have enough money to pay the property taxes when they come due. Whether or not escrow and impound accounts are established is usually at the discretion of the borrower, but they are almost always required when the buyer's first mortgage loan represents more than 80 percent of the sales price of the property.

So if the insurance policy is lowballed and the property taxes are misquoted, it can be quite a shock when you get to the closing table and have to come up with not just higher taxes and insurance than you were quoted, but at least double the amount of the error.

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