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4 Facts You Need to Know Before Setting Up a Mortgage Escrow Account

Posted on March 2, 2016 by Michelle Castle

4 Facts You Need to Know Before Setting Up a Mortgage Escrow AccountBuying a home involves a variety of nuances and strange-sounding terms, and one of the least understood aspects of the home buying process is the escrow account. Essentially, an escrow account is a third party bank account your lender can require you to pay into in order to cover certain costs related to your home. Your lender uses an escrow account to ensure that property taxes and home insurance fees get paid on time.

But how exactly do escrow accounts work? Here’s what you need to know.

Escrow Accounts Are Mandatory With Certain Mortgages

Not all home buyers are required to have an escrow account. In cases where the buyer pays 20 percent of the purchase price down, lenders will typically waive the escrow, as the buyer has proven liquid assets that can be used to pay property-related fees. But depending on your type of mortgage, you might be required to have an escrow account.

If you bought your home with an FHA loan, you must have an escrow account. Similarly, if your down payment is less than 20 percent, you’ll most likely be required to have an escrow account.

You Can Choose To Pay A Lump Sum Or A Monthly Fee

As your lender uses your escrow account to pay property fees, you’ll need to ensure the account has the available funds to cover taxes and insurance. Typically, your lender will provide you with a set of payment options to keep the account topped up. You may be able to choose whether to pay your escrow fees in an annual lump sum or in 12 equal payments throughout the year, however paying monthly is the most common scenario.

Escrow Payments Can Change Over Time

When your escrow payments begin, you’ll be given a payment schedule with a set payment amount. But just because you start paying $150 per month into the account, that doesn’t mean your monthly payment will stay at $150 per month. If your insurance rates or taxes increase, you’ll need to make larger escrow payments to cover the difference in cost.

Cancelling An Escrow Account May Not Be Easy

An escrow account is a fairly permanent mortgage fixture – once it’s established, there are very few ways to get rid of it. Some escrow agreements do allow you to request a cancellation, but they’ll require you to have a set amount of equity in your home, or pay a cancellation fee, or both. Refinancing will close an escrow account, but you’ll need a 20 percent down payment equity position when doing the refinance to avoid opening a second account.

Setting up an escrow account is a great way to automate your bills and ensure your mortgage is paid on time. Call your local mortgage specialist to learn more.

This entry was posted in Home Mortgage Tips and tagged Escrow Account Information, Home Buyer Tips, Home Mortgage Tips by Michelle Castle. Bookmark the permalink.

Michelle Castle, Area Manager

NMLS #231122
714 N Travis St,
Sherman, TX 75090
mcastle@guildmortgage.net
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Since 1996, I have had the pleasure of guiding thousands of families through their home loan experience. I'm skilled at structuring a wide variety of loans for the first-time-home buyer to the seasoned investor.

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Guild Sherman Branch building

Branch NMLS ID 1211748. Licensed to do business in the state of Texas and Oklahoma. Licensing and Consumer complaint & Recovery Fund NMLS Consumer Access, Privacy Policy. Guild Mortgage Company, Equal Housing Opportunity, Company NMLS 3274

Michelle Castle is a licensed loan officer in Texas and Oklahoma for Guild Mortgage Company; Licensed by the Texas Department of Savings and Mortgage Lending, NMLS #231122.  The postings on this blog don't necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates.  This information is not guaranteed to be accurate and shall not be construed as a guarantee of loan approval.  All loans are subject to underwriter approval, and are subject to change without notice.

Attn: TEXAS APPLICANTS:
Consumers wishing to file a complaint against a mortgage banker  or a licensed mortgage banker residential mortgage loan  originator should complete and send a complaint form to the
Texas department of savings and mortgage lending, 2601 north Lamar, Suite 201, Austin, Texas 78705. Complaint forms and Instructions may be obtained from the department’s website at www.sml.texas.gov. A toll-free consumer hotline is available at 1-877-276-5550.

The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the Department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at http://www.sml.texas.gov

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