Escrow accounts

Escrow accounts are accounts that lenders set up to recieve payments from borrowers to use to pay property taxes and homeowners insurance. In this way a borrower can send in 1/12 of the yearly tax and insurance bill each month instead of coming up with the full amount at the end of the year.

When you put down less than 20% as a down payment, the lender will require you to have escrow accounts. The lender wants the escrow accounts as they can be sure the taxes and insurance are paid on time. They also collect interest on the money.

If you put down at least 20% (or get a second loan so your first LTV (Loan To Value) ratio is less than 80% of the price) you can elect to waive the escrow accounts. Since the lender doesn't get to collect interest on that money any more they charge a fee, usually 0.25% of the loan amount.

At closing lenders also collect 3 months worth of taxes and insurance as a buffer against rising taxes and insurance. They are regulated by the Federal government on how much they can hold in escrow. So if your taxes drop, you should receive a partial refund from the lender. Conversely if they go up, your escrow payments will increase.

For most borrowers escrow accounts are a good idea as the payments are spread throughout the year and it's easier to let the lender handle it. However, for some it's preferable to pay the fee so that they can make interest on their own money.

I'd be happy to look at any loan scenario you may have. Just email me billconover@america-lending.com.