Escrow Accounts

AimMortgage home loan expert Stormy Ray explains escrow accounts and how they affect your mortgage payment and loan closing process.

What is an escrow account?

An escrow account is money collected as part of your monthly house payments to pay property taxes and homeowner insurance premiums for your new home. 

How does it work?

Escrow accounts are generally established at the time you close your new loan.  Your house payment is divided into three parts: principle, interest, and escrow.  Your escrow payments are spread across twelve months.  Every month when the mortgage payment is made a portion of that payment would be applied to your escrow account. 

Who collects the escrow money?

Your mortgage service provider collects the money or the company you make your monthly mortgage payments to. 

How does an escrow account affect my closing costs?

At closing, the borrower will make an initial deposit of 2 months escrow payments into their account, plus a calculated number of months to have sufficient funds in the escrow account to pay property taxes and homeowners insurance when they are due.   This helps create a cushion for future escrow shortages. 

Will my house payment change?

If you have a shortage in your escrow account, your mortgage company may increase your monthly house payment to help compensate for that shortfall.  You do have the option to make a one-time payment to cover the shortage should you not want to pay monthly.  If you have a surplus, you might receive a refund, or you can choose for the money to stay in your escrow account for future shortages.

What causes escrow shortages?

When your property taxes increase or your home insurance premium increases, it can cause an escrow shortage. 

Do I have to have an escrow account?

Not all loans require you to have an escrow account.  Certain loan types do require an escrow account, such as FHA and VA loans.  If you don’t have this type of loan and have at least a down payment of 20%, it is not necessarily a requirement.

 

Need help through the mortgage process? Your mortgage lender is an invaluable resource and can walk you through the home loan process step by step. 

 Amarillo AimMortgage Lender Stormy Ray

Published by:
Stormy Ray

AVP, Mortgage Loan Officer
AimMortgage in Amarillo, Texas
(806) 513-6719

 

Return to Blog