It’s May So Non-Cook County Residents May Need To Bring A LOT Of Money To The Closing Table

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Quick note to residents of non-Cook County residents in Chicagoland: your next tax bill is due June 1.

The upcoming payment takes on added significance if you're in the middle of a refinance and you are planning to escrow, though.  Heads up!  Your cash required for closing may be significantly higher than what you expect.

Here's why.

Your new lender wants ample reserves in order to pay your June 1 real estate tax bill for you, and your subsequent bill September 1.

Therefore, they will require you to populate your new escrow account with 11 months of "T&I" (taxes & insurance).

(A quick Escrow Reserve Chart for all Chicagoland counties not named Cook is at right.)

On June 1, your new lender will disburse 6 months worth of reserves to pay your bill, leaving you with 5 months left in your escrow account.

When your July 1 mortgage payment is made, it adds one month to the reserve pile.  In August, your payment adds one more.

By then, you will have 7 months worth of reserves in the account.

Now, sometime towards the end of August, your new lender will pay your tax bill and you will be left with somewhere around one month's worth of reserves.  This is because tax bills tend to go up over time and if your individual bill was higher than anticipated, that extra reserve month may have been spent.

In September, with each mortgage payment, you'll start building your reserves again -- one month at a time -- to get ready for the following June.  That's when the lender will pay your real estate taxes for you again.

Now, back to the May closing.

When a home loan closes in May, the first payment on that home loan is made in July (in most cases).  According to the chart above, that means that -- at closing -- the borrower is required to bring 11 months of reserves to the table.

11 months of reserves is a lot of money!  It can be a huge imposition on a family that wasn't prepared to make that sort of payment in one lump sum -- especially if they live in a county like Will County where taxes can exceed 2 percent of a home's value.

The good news is, though, that paying the 11 months in advance is only a temporary strain.  Shortly after your closing, the former lender will refund whatever existing escrow reserve was held with them.

Of course, that doesn't help today with the 11 months worth of cash-to-close.

If you plan to escrow your taxes and insurance and don't have the money required to populate your new account, make sure to talk with your lender prior to closing. With enough advance notice, your lender can make accommodations to help you out.