-Home Purchase Guide
a Fast Purchase
-Buy, Don't Rent!
-Spouse Have Bad Credit?
of Credit Card Debit
-Student Home Loans
-Fair Market Value
-Buyer's Market or Seller's?
-Making an Offer
No Money Down
Buying a Vacation Home
Home Equity Loans
WHAT ARE ESCROW ACCOUNTS?
When you close on your mortgage loan, you are going to
be required to deposit money into an escrow account
(commonly called an impound account). This money is used
to pay for real estate taxes and insurance premiums. An
escrow account ensures that the taxes and insurance are
going to be paid, on time. This protects the lender from tax liens and
uninsured losses that the borrower can't repay.
The amount lenders can require in escow is limited to
two months' payments by the federal
Real Estate Settlement Act.
Assesments and adjustments are typically made annually.
How are escrow accounts managed?
As a result of tax assessments and insurance premium
adjustments, the amount in the escrow account varies during the year
due. The lender will normally cover any
deficits until it can amend your monthly payment to
make up for premium hikes and tax increases. Therefore,
you can expect your
monthly mortgage payment to change from year to
year, even on long-term, fixed-rate loans.
Is there any way to avoid escrow?
Yes. It is common for some lenders to allow
homeowners to pay their own home insurance premiums and property
taxes, especially if your
loan-to-value ratio is below 80%. Don't be surprised if
your lender increases your interest rates to make
counteract the extra risk that they are taking on.
As soon as an escrow requirement is in place, it can be
hard to convince a lender to terminate it. If your
loan is sold, as is common, and there is nothing in the
lending agreement that provides for termination of the
escrow requirement, you'll have to deal with the
decision of your new mortgage servicer.