When you sign your name for a mortgage on a new home, the most prominent figure that you remember is the monthly payment that you are expected to make. Your payment always includes payments towards your principal and interest. In many cases, it includes prorated monthly payments for the annual amounts that your lender expects to pay for real estate taxes, property insurance and other fees on your behalf.

The possibility of tax overpayment, unpaid interest and retaining a large sum of money are all possibilities within escrow accounts for many homeowners. Escrow accounts provide benefits for both the mortgage company and the payee, but if taxes in your area happen to go down or your payments are overestimated, you will have too much money in your escrow account at the end of the year. Your lender will then pay the appropriate amount to the municipality, and the remaining amount goes to you.

If you are worried that you will not have enough money in your escrow account to cover property taxes and homeowners insurance bills, you can increase the amount of money you send to your escrow account each month. If you have an overage, though, your mortgage lender will eventually send you a refund check for any funds left in the escrow account after the end of the year.

 

What is Escrow?

Escrow refers to a third-party service that is part of every home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects a deposit from the buyer that is equal to a small percentage of the sale price. This deposit is known as “earnest money”. In exchange, the seller takes the property listing off the market. Until the final exchange is completed, both the seller’s property and the buyer’s deposit are said to be in escrow.

Escrow accounts are a part of the mortgage process homebuyers typically cannot avoid. With mortgages, home buyers typically pay a little extra into an escrow account every month, along with their home loan payments.

While a mortgage holder (most typically a bank) collects the principal and interest payments each month, they also can collect homeowner’s insurance payments and property taxes. They will then pay those bills when they come due. They do this because when you borrow money from a lender to finance your home purchase, the property becomes the collateral for your loan. Your lender needs to know that the property is adequately insured so that it can be repaired or replaced if damaged. Likewise, they want to prevent a tax lien being placed on the property if you neglect to pay taxes.

 

Know Escrow Basics

Most, but not all, lenders require borrowers to take out an escrow account when buying their new home. Under such an arrangement, you will pay extra with each month’s mortgage payment toward mortgage insurance, property tax and homeowner’s insurance bills so you do not have to pay them separately. This also helps the lender ensure that your home is covered by insurance, which protects their loan investment.

When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects a deposit from the buyer that is equal to a small percentage of the sale price. This deposit is known as “earnest money”. In exchange, the seller takes the property listing off the market. Until the final exchange is completed, both the seller’s property and the buyer’s deposit are said to be in escrow.

While a mortgage holder (most typically a bank) collects the principal and interest payments each month, they also can collect homeowner’s insurance payments and property taxes. They will then pay those bills when they come due. They do this because when you borrow money from a lender to finance your home purchase, the property becomes the collateral for your loan. Your lender needs to know that the property is adequately insured so that it can be repaired or replaced if damaged. Likewise, they want to prevent a tax lien being placed on the property if you neglect to pay taxes.

 

What is an Escrow Payment?

After you purchase a home, you will be responsible for maintaining insurance on the property and paying state and local property taxes. The property tax and insurance premiums you owe are the escrow payments made to your escrow or impound account.

The impound account ensures that the funds for taxes and insurance are available and that premiums are paid on time. Your lender does not want you to miss a tax payment and risk a foreclosure on the home. They also do not want you to miss a homeowner’s insurance payment, or they may be forced to take out additional insurance on your behalf to cover the home in the event of property loss or severe damage.

 

How Much You Pay

The amount you pay in escrow each month varies depending on your property taxes and homeowner’s insurance bills. Whatever your property taxes and homeowners insurance come out to per year, a portion of your monthly payment is set aside in your escrow account to cover these bills. Lenders are allowed by federal law to collect an extra two months of escrow payments as a cushion. The lender could receive extra throughout the year to make sure that the homeowner’s escrow account has enough money to cover these two bills.

 

Escrow Surplus

One of the purposes of the annual escrow analysis is determining whether your account has a surplus or a shortage from the previous year. Surpluses and shortages occur when the cost of your taxes or insurance change during the year. A shortage means you may need to make a payment to your escrow account, while a surplus means you could be getting a refund.

According to the Consumer Finance Protection Bureau’s Regulation X, an escrow surplus of $50 or more must be refunded to the borrower within 30 days. If your surplus is less than $50, your lender can either refund it to you or apply it to your escrow balance for the following year. Most lenders will also allow you to apply a larger surplus to your future escrow payment.

 

Choosing to Pay Extra

If you send your lender extra money with each mortgage payment, make sure to specify that this money is for escrow. You might want to pay extra if your escrow impound account ended in a deficit for the previous year and you want to bring it back up to level without having to make increased payments throughout the year.

Many lenders will provide an option on the monthly bill for including extra money toward either your principal balance or the escrow account. By putting extra money in your escrow account, you will not be paying down your principal balance faster. Your lender will only use these funds to bolster your escrow account.

 

Can I Pay My Escrow in Advance?

Your lender will open a mortgage escrow account at closing, when you pay some of the escrow in advance. You will pay no more than one-sixth of the total estimated yearly escrow at closing, which will allow the lender or loan servicer to have a couple of months’ worth of payments in advance.

 

Why Would I Get an Escrow Refund Check?

Typically, when you take out a mortgage, your lender requires you escrow your taxes and insurance. This means that you pay money toward these annual expenses when you make your monthly principal and interest payments. If your escrow account contains excess funds, then you receive an escrow refund check.

 

When Will I Get My Escrow Refund?

Escrow Refund Period Mortgage lenders can take up to 30 days to refund escrow account balances to borrowers whose mortgage loans have been paid off. For several reasons, mortgage lenders tend to take their time refunding their borrowers’ escrow accounts.

 

Will I Get an Escrow Refund Every Year?

The lender determines how much you pay each month by estimating the yearly totals for these bills. However, sometimes the lender overestimates, and you end up paying more than you owe. If this occurs, the lender details it on the statement provided to you at the end of the year and issues a refund if necessary. This is not something that should happen every year.

 

Can I Pay My Mortgage In Advance?

Yes you can, but make sure that you tell your lender that you want your payment to go toward your principal if you do make advance payments on your mortgage. Some mortgage lenders apply any extra payment you make toward your next monthly minimum. By putting extra money in your escrow account, you will not be paying down your principal balance faster. Your lender will only use these funds to bolster your escrow account.

 

What Happens at Citrus Heritage Escrow?

Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.

During the escrow period, the title company coordinates with Citrus Heritage Escrow and begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.

When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.

Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200