NYC Affordability

Instead of writing the city a big check once or twice a year, you pay a slice of your property tax with every mortgage payment, and the servicer pays the bill when it’s due. Under Fannie Mae’s rules, first mortgages generally provide for escrowing taxes and insurance, though lenders may waive it for some borrowers unless the law requires it. Mortgage insurance is the exception: if you’re paying borrower-purchased PMI on a Fannie Mae loan, escrowing it isn’t optional.

In NYC, if a bank or mortgage company pays your property taxes, the Department of Finance sends the bill to them, not you. Bills are quarterly (due July 1, October 1, January 1 and April 1) when a property’s assessed value is $250,000 or less, and semiannual (July 1 and January 1) above that. For a condo, the unit owner’s HO-6 policy may or may not run through escrow: Fannie Mae doesn’t require escrowing unit insurance when the building carries a blanket policy. Co-ops are different again. The co-op corporation pays the building’s real estate taxes and passes each shareholder’s share through in maintenance, so there’s no separate unit tax bill to escrow.

Federal rules cap what a servicer can collect. Each month it can charge 1/12 of the year’s expected escrow bills, plus a cushion of no more than 1/6 of the annual total. It reviews the account each year, and if there’s a surplus of $50 or more and you’re current, it must refund it within 30 days. When taxes go up, your monthly payment goes up with them.

Worked example

This site’s condo calculator defaults to $1,250 a month in property tax, or $15,000 a year. Escrowed, that’s $15,000 ÷ 12 = $1,250 a month added to principal and interest. The federal cushion cap is $15,000 ÷ 6 = $2,500, so that’s the most extra the servicer can hold in reserve, which is part of why closing day asks for an initial escrow deposit on top of everything else.

See property tax built into your monthly cost on the Condo Calculator, or compare it with co-op maintenance in co-op vs condo costs.