Michigan mortgages – explanation of tax pro-rations
If you are buying a Metro Detroit home and getting a Michigan mortgage here is a quick explanation of tax pro-rations.
Here is my definition of tax pro-rations:
Tax pro-rationsare the amount of money you will owe the seller for the property taxes they have pre-paid.
In Michigan we pay property taxes in advance. When you buy a Michigan home you will have two taxes to pay. A winter tax and a summer tax. Each tax covers a 12 month period. Winter taxes are due December 1 and go until November 30th of the next year. Summer taxes are due July 1 and go until June 30th of the next year.
Let’s do a scenario of explanation of tax pro-ratios. Let’s say the winter taxes are $1200 a year and the summer taxes are $3000. So let’s say we are closing on Feb 28 2010.
So the seller has paid the winter taxes on December 1, 2009. His winter taxes are $1200 a year or a $100 a month. So he has used up 3 months of his taxes he paid because we are closing on Feb 28. So he has 9 months of taxes he has paid and not using. The seller wants his money back. It is customary for the seller to get his tax money back. So you owe the seller 9 months of taxes X $100 = $900
Homes for sale in Oakland County MI $100,000 - $150,000
Then we figure out how much you owe the seller back for the summer taxes. The summer taxes are $3000 or $250 a month. So the seller has used up July, August, September, October, November, December, January, February. He has used up 8 months of his taxes. So you owe the seller 4 months back. 4 months X $250 = $1000 you owe the seller.
$1000 summer taxes + $900 winter taxes = $1900 in tax pro-rations you owe the seller.
Of course what tax pro-rations you owe the seller depends on how much the taxes are and when you close on the house. There is no ”good time” to close. Tax pro-rations are just a cost of buying your new home. I hope this explanation of tax pro-rations will help you understand your Michigan mortgage and the closing costs.
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An optimist stays up until midnight to see the new year in. A pessimist stays up to make sure the old year leaves. ~Bill Vaughan