Hey, this is Kyle Seagraves with Motto Mortgage and really quickly wanna
walk through what tax proration is.
So if you're looking at putting in an offer in a house most likely you've
heard tax probation, there's short proration, there's long proration.
So I wanna walk through the difference between the two and what it means
for you at the end of the deal.
All right.
So in the state of Ohio taxes are paid semi-annually, so they're paid in.
And in July, not only that, but taxes are also paid in arrears.
So those semi-annual payments are paid the six months prior.
So it can get a little confusing because let's say that you close
on your house and you move in July and then you get a tax bill.
You just moved into the property, but you got a tax bill.
For the time that the seller was in the.
and so you're wondering, why am I responsible to pay this tax bill?
We just moved in and this is because taxes again are paid in arrears.
So the way to solve this is through what's called tax expiration.
So all we're doing with tax expiration is prorating the time
that the seller was in the property and giving you the credit for it.
All right.
So there's two ways of calculating this and this can
be negotiated in the contract.
So there's short proration, which is pretty common around Montgomery county
and there is long proration, which is more common around the rest of the nation.
So short proration is we're gonna start in January and we're gonna count
every single day until you close and give you a tax credit for that amount.
So if taxes are, let's say $1,200 a year, Taxes are a hundred dollars a month.
So let's say that you close March 1st, you'll be getting a $200 tax credit.
Okay.
So we had all of July's taxes, all of February's taxes.
And we gave that to you as a credit, or I'm sorry, sorry.
I should say the seller gives you that to you as a credit at closing, so
that can pay down your closing costs.
All right.
Long proration is the same thing as short, but we add
six months of credit on top.
So let's do the same example.
Let's say you're closing March.
First taxes are $1,200 a year or a hundred dollars a month.
And you're getting long proration.
While the short proration, you only got $200 worth of taxes at closing with
long proration, we take $200 and then we add the six months on top of that.
So you're actually getting $800 worth of credit at closing.
So again, that's the difference.
Short proration in this example gives you a $200 credit.
Whereas long proration gives you an $800 credit.
So long proration can be beneficial to you if you need.
Some of those closing costs paid down a little bit more.
But it can take away from your negotiation position, right?
Because remember the seller is the one paying for that proration credit and they
don't always want to give up that money.
Okay. So it's something to consider.
This is what it will look like on contract.
We'll have there won't be this blue box here.
But it'll say short proration method.
If it's unchecked, it's gonna be long proration.
And if it's checked, it's gonna be short.
So right now this is a long proration of taxes.
So this buyer would be getting.
From January to closing, plus six months of tax credit.
Now, something you consider here if you're escrowing your taxes, which means
you're having the lender pay them and you're just making monthly payments
towards your taxes, then you won't have to worry about having that tax bill due.
The lender will be paying the tax bill for you.
And you'll just be making those monthly payments, but at closing,
you'll still get a credit for either short proration or long proration.
So basically it's just a small portion of the contract that can affect the
difference in your total closing.
Costs because this is a credit.
Sometimes it's gonna be a small credit with short proration, or it can
be a larger credit with long proration.
If you have any questions about how this works or need some clarity on
this, feel free to talk through realtor or give myself a call or an email.
But hopefully this helped to add some clarity to the whole process.
And I'll talk with.