You may have heard the term “Escrow” and wondered what exactly is this and how does it affect my home purchase. We are here to help give you the skinny on this common term.
When you purchase a home, many mortgage lenders set up an escrow account to hold money to pay property taxes and insurance. Each month, you pay a portion of the estimated annual costs along with the principal and interest of your home loan. Your mortgage lender will then pay these items when they come due and ensure they are paid on time.
At the end of the year, the lender will review, and adjust as needed, your monthly escrow amount based on the actual tax and insurance bills. If you were short, you’ll generally be allowed to spread the difference out over the coming year. If you paid in too much, the lender will refund your money that was overpaid.
Some lenders will allow you to pay your property taxes and home insurance premiums yourself, however in most cases your loan-to-value ration must be below 80%. If you are putting less than 20% down, your lender may require you to set up this escrow account.
If you have more questions about escrow please don’t hesitate to reach out to us. Our loan specialists are here to help answer any questions you have and help make your purchase a smooth one.
