What exactly is an "escrow" account and why does it change sometimes???

1. WHAT IS AN 'ESCROW' ACCOUNT

An escrow account is an account maintained by your mortgage servicer for the payment of bills. Bills such as property taxes and homeowner's insurance are deducted from your escrow account.
With each monthly mortgage payment, a portion goes into your escrow account for property taxes and insurance premiums (homeowner's, mortgage insurance (PMI), or flood insurance). When those bills are due, your mortgage servicer uses the funds in your escrow account to pay them.  Part of the payment goes to pay your principal and interest, and part goes into your escrow account for property taxes and insurance premiums.


2. WHAT ITEMS ARE TYPICALLY PAID FROM AN ESCROW ACCOUNT

Most often the following are paid from escrow:

Property taxes

Homeowner's insurance

Mortgage insurance (if required)

Flood insurance (if required)

Your escrow account does not pay: 

Homeowners Association (HOA) bills

Special or added tax assessments

Interim or supplemental secure tax bills (CA residents)

Water and other utility bills

Per Capita tax bills (PA residents)
 
3. WHERE CAN I FIND INFORMATION ABOUT MY ESCROW ACCOUNT?

You can find information about your escrow account by logging into your online mortgage account or contacting your mortgage servicer. You'll be able to learn about previous escrow account activity and projected future activity including any changes to your monthly mortgage payment.

4. HOW OFTEN IS MY ESCROW ACCOUNT REVIEWED?

Property taxes and insurance premiums change over time. Your mortgage servicer reviews your escrow account annually to make sure you'll have enough funds to cover your bills. To help with any unexpected increases, you need to keep a minimum balance in your account at all times.

5. WHAT DO I NEED TO KNOW IF I'VE BEEN NOTIFIED OF AN ESCROW SHORTAGE?

A shortage occurs when payments to property taxes and/or homeowner's insurance obligations cause your escrow account balance to drop below the required amount. The required balance is based on your escrow cushion requirement, which is typically equal to two monthly escrow deposits unless otherwise required by state law. The shortage amount will appear on your Escrow Account Disclosure Statement.
Escrow shortages frequently occur due to increases in either taxes or insurance premiums. However, a shortage can also result if unexpected bills were paid on your behalf. Such items may include lender-placed insurance, midterm policy substitutions or delinquent taxes.
 
6. WHAT DO I NEED TO KNOW IF I'VE BEEN NOTIFIED OF AN ESCROW SURPLUS?

If your escrow account is projected to have more than the minimum balance required, you have a surplus. The amount of the surplus will usually be refunded to you in 30 days, as long as your loan is paid current at the time of the analysis. The check may be attached to the bottom of your statement or it could be mailed it to you under separate cover.  If your loan is past due at the time it is determined that a surplus exists, a refund will not be sent to you. Once your loan is brought current and if the surplus still exists, the amount of the surplus will be refunded to you.

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Our friends at SWBC Mortgage helped bring this information to you today! Home ownership, loans, refinancing, etc. can be daunting and overwhelming, but Mortgage and Real Estate professionals deal with it all day, every day. Call us when you have a question, need a referral, or just want to ask real estate questions- we love helping you!