If you're purchasing a home or thinking about doing so, knowing what your lender is talking about can alleviate a lot of the stress. You may have heard something about an escrow account that needs to be set up, but you may not know exactly what it means and how they work for your home purchase.
An escrow account is a special account set up when you get a mortgage. The money, collected from you, will pay for your property taxes, homeowners insurance, or other charges related to the property. A third party is responsible for collecting, holding and disbursing the money. At closing, you have to begin paying into the account so there will be enough money to pay the taxes and insurance. The rest of the money will be collected with your mortgage payment and be deposited in the account on a monthly basis. Escrow accounts protect the lender by insuring that the taxes and insurance premiums will be paid on time.
The Real Estate Settlement Procedures Act has set limits on the amount that a lender can require you to put into the account. By law, the account should not have more than one-sixth of your total insurance and tax bills. The lender reviews it every year to determine if there is a shortage or excess.
FYI
Ø Check your mortgage statement each month to determine if you're paying too much into the escrow. Don't hesitate to contact your lender about it.
Ø If your down payment is at least 20%, you may not be required to set up an escrow account. Likewise, when you have paid off at least 20% of your mortgage, you may be able to eliminate the escrow and pay your taxes and insurance on your own.
Ø If your have an FHA or VA loan, an escrow account is required.
It's a good idea to verify if your taxes and insurance have been paid on time by contacting your lender. As a consumer, you have the right to review your escrow account at any time.
An escrow account is a special account set up when you get a mortgage. The money, collected from you, will pay for your property taxes, homeowners insurance, or other charges related to the property. A third party is responsible for collecting, holding and disbursing the money. At closing, you have to begin paying into the account so there will be enough money to pay the taxes and insurance. The rest of the money will be collected with your mortgage payment and be deposited in the account on a monthly basis. Escrow accounts protect the lender by insuring that the taxes and insurance premiums will be paid on time.
The Real Estate Settlement Procedures Act has set limits on the amount that a lender can require you to put into the account. By law, the account should not have more than one-sixth of your total insurance and tax bills. The lender reviews it every year to determine if there is a shortage or excess.
FYI
Ø Check your mortgage statement each month to determine if you're paying too much into the escrow. Don't hesitate to contact your lender about it.
Ø If your down payment is at least 20%, you may not be required to set up an escrow account. Likewise, when you have paid off at least 20% of your mortgage, you may be able to eliminate the escrow and pay your taxes and insurance on your own.
Ø If your have an FHA or VA loan, an escrow account is required.
It's a good idea to verify if your taxes and insurance have been paid on time by contacting your lender. As a consumer, you have the right to review your escrow account at any time.