Do we need to estimate and pro rate taxes on the Loan Estimate since this will affect cash required for closing? If the seller will be paying a portion of the taxes at closing do we list this as a seller credit on the Loan Estimate? If the borrower is paying the taxes to the seller does this go under prepaid taxes?
Yes, if you are including pro rated taxes as part of the transaction then you would include the estimate in the Loan Estimate to ensure it gets calculated into your cash to close figure.
If the seller will be paying a portion of the taxes at closing you would list it as a seller credit on the Loan Estimate based on 1026.37(h)(1)(vi). This information may be obtained from a verbal conversation with the borrower, from reviewing the sales contract, or from the real estate agent. This estimate must be based on the best information reasonably available at the time the Loan Estimate is provided.
Finally, the last question is not specifically addressed in the regulation; however, if the borrower is paying the taxes to the seller as part of the transaction than it would need to be accounted for in the borrower’s closing costs. The best place to do that would be the prepaid section – Block F. This would then allow that amount to be reflected in the closing costs for the borrower.