To Know Escrow

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Let's break down what escrow is, how it works, and why it matters for homeowners.

What is Escrow?

In real estate, an escrow account is typically established to manage the funds needed for property-related expenses, such as 1. property taxes & 2. homeowners insurance (You can also include mortgage insurance, flood insurance & HOA dues). Depending on the type of loan you are qualifying for, you can either choose to set up the account or not.

How Escrow Accounts Work

  1. Setting Up an Escrow Account: When you close on a home you can elect to set up and escrow account. Other times, depending on the loan program, you may be required  to set up an escrow account. Fear not, your lender will help set up & manage the escrow account for you.
  2. Monthly Contributions: Each month, a portion of your mortgage payment goes into the escrow account. This amount is calculated based on your expected annual expenses for property taxes and insurance, divided by 12.
  3. Disbursement of Funds: When your property taxes or insurance premiums are due, your lender will use the funds in the escrow account to pay these bills directly on your behalf. This ensures that you remain compliant with local regulations and that your insurance coverage is maintained.

The Benefits of Using an Escrow Account 

        To put it simply. You can have the peace of mind that you have the necessary funds to pay                     your homeowners insurance & your property taxes in full, when they are due.

What to Expect with Your Escrow Account

  1. Potential Changes: Be aware that property taxes and insurance premiums can change over time. If your rates increase, your lender may adjust your escrow contributions accordingly. Keeping track of these changes can help you stay informed about your overall financial situation
  2. Annual Escrow Analysis: Your lender will conduct an annual escrow analysis to ensure that your account is adequately funded. They’ll review your property tax and insurance costs, and adjust your monthly contributions if necessary. You may receive a refund if there’s a surplus or need to pay more if there’s a shortfall.
  3. Initial Escrow Deposit: At closing, you might be required to deposit an initial amount into your escrow account. This ensures there are enough funds to cover upcoming property tax and insurance payments.

By grasping the concept of escrow from both an account and payment perspective, you can approach homeownership with confidence, ensuring that your financial responsibilities are well taken care of. If you have more questions about escrow or any other mortgage-related topics, feel free to reach out. 


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