IS AN ESCROW ACCOUNT REQUIRED WITH A HOME MORTGAGE?

 

IS AN ESCROW ACCOUNT REQUIRED WITH A HOME MORTGAGE?

 

An escrow account may be set up when someone finances a home purchase. Typically if one has an escrow account it is for both taxes and home owner insurance. Whether an escrow account is required can depend on several factors.

As a general rule in the past if one had a down payment of 20% an escrow account was not required on many home mortgages. Typically a lender would charge a fee if one did not want to have an escrow account. 

 

One reason a lender requires an escrow account is if one fails to pay taxes on property it can be sold to settle the tax bill. The lender would lose their priority in the foreclosure process.

 

As is the case with the lending culture these days escrow accounts are changing.   Now we can waive the escrow account with as little as 5% equity on a conventional loan, and there is no fee for the waiver. 

 

Whether a lender requires an escrow is a question for the loan originator during the application process. VA for instance does not require a lender to have an escrow account for VA loans, however, lenders often "overlay" that guideline and require an escrow account. 

An escrow account can be a pro or a con depending upon the individual. Some folks prefer to handle paying taxes and insurance on their own. One down side for doing so in my market is the tax bill hits right before the holidays start up. If one plans ahead then it's no big deal. If one saves funds each month earmarked for taxes and insurance it can be just fine. I find people who waive escrow accounts tend to fit this mold. If not it can be easy to slip behind on tax and insurance payments. 

When an escrow account is set up the lender pays the tax bill or the insurance bill even if they are short funds to do so. Taxes and insurance seem to always rise so when escrowing the lender has to analyze the account annually to adjust the amount of money escrowed. They don't tend to miss payments. 

So ask your loan originator if you must have an escrow account and if the answer is no, then decide if having an escrow account works best for you!

 

 

 

 

Comment balloon 0 commentsDora Griffin • June 19 2018 08:22PM
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