| As a first time home buyer, it won’t be long into | | | | covered in the event of a disaster and feel confident |
| your home buying adventure before you are | | | | you are meeting your lenders requirements. |
| presented with the concept of escrow. Here is a quick | | | | Changes to Taxes or Insurance Costs |
| introduction to escrow in the context of home | | | | Each year your lender will review your escrow |
| insurance and property taxes. | | | | account. You will receive a detailed statement |
| Escrow Account – A Definition | | | | including the total deposits made into the escrow |
| "A trust account held in the borrower's name to pay | | | | account and the insurance and tax payments made |
| obligations such as property taxes and insurance | | | | on your behalf. Your lender will notify you of any |
| premiums." | | | | excesses or shortages in your escrow account due to |
| Escrow – How it Works | | | | changes to your taxes or insurance costs. Typically, |
| An escrow account is opened and maintained by your | | | | shortage amounts will be added to your next |
| mortgage lender. It is essentially a savings account in | | | | mortgage payment. By law, any excess of $50 or |
| which deposits are automatically made with money | | | | greater will be returned to you. Another |
| from your monthly mortgage payment. Your | | | | Tip: Confirm that your Payments were Made |
| property tax bills and insurance premiums are paid by | | | | It is a good idea to confirm that your escrow items are |
| the lender from the funds from the escrow account. | | | | paid on time and no late charges have been applied to |
| Why Does the Lender want to take on this Task? | | | | your account. Lenders are required to make your |
| Your lender wants to make absolute sure that your | | | | payments in a timely manner as long as your |
| home insurance premiums and property tax bills get | | | | mortgage payment to them is not more than 30 days |
| paid. Your home is collateral for all of the money | | | | overdue. If you lender was late on the payments and |
| they lent you to purchase your home. If, for example | | | | you receive a bill for late fees or penalties, forward this |
| your home is destroyed by fire and you are not | | | | bill directly to your lender. As a matter-of-fact, if you |
| covered by home insurance, that collateral is gone. | | | | receive any insurance or tax bills that are to be paid |
| Similarly, if you don’t pay your property taxes and | | | | via your escrow account, also forward these to your |
| the state forecloses on your property, the bank again | | | | lender. |
| loses its collateral. This is a risk most lenders are not | | | | Tip: Open up (and read) that Homeowners Policy |
| willing to take. An escrow account assures the | | | | You will continue to receive an annual copy of your |
| mortgage lender that your taxes and insurance are | | | | homeowners insurance policy. Because you |
| paid. | | | | won’t be paying the bill yourself, you may get in the |
| Advantages for You | | | | habit of simply filing the policy away without looking at |
| Budgeting for property taxes and homeowners | | | | it. This is a mistake! To confirm that your home is |
| insurance couldn’t be easier – as it is done for | | | | not overinsured or underinsured read your policy |
| you. Additionally, you can be sure that your home is | | | | carefully. |