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Whether you are purchasing a new home or you are considering applying to refinance your home, chances are the lender will require an escrow account. These accounts are often a source of confusion for homeowners.
In reality, these accounts benefit the homeowner and help protect the lender.
Escrow accounts are sometimes called “impound” accounts. These accounts are set up to help manage payments of property taxes and homeowner’s insurance.
Depending on the individual requirements of the lender, you may be asked to pay as much as one-quarter of these upfront and they will be put into the account for the purposes of making payments.
Lenders have complete control over escrow accounts. However, homeowners are entitled to receive an annual statement advising them of their escrow balance.
If there is an increase or decrease in insurance payments through the year, a homeowner may request the lender evaluate the escrow account and change the amount that is paid.
There is no mandate to pay interest on escrow accounts. When you refinance your home, the funds for your taxes and insurance are calculated into your overall payment.
The portion that is to be used to pay taxes and insurance is placed in escrow.
When you sell or refinance your home, your escrow account will be credited at closing. The amount may be used to lower your out-of-pocket costs or may be turned over to you as a direct payment.
If your lender has underestimated your escrow payments, they may request you send an additional payment to make up the difference. In the event you are paying too much into escrow, your lender has the discretion to release the overage amount directly to you.
In most cases, shortfalls or overages of $50 or less are typically not a major concern.
If your lender requires you to have an escrow account for the taxes and insurance portion of your mortgage payment, it can be very helpful. Escrow accounts help ensure you do not have to come up with a large payment once a year for insurance or quarterly for taxes.
In some cases, if a lender does not require an escrow account, as a borrower, you may request they escrow your taxes and insurance for convenience.
For more information on Escrow and how it works check out our Mortgage Library’s article on Escrow Account Basics!
Do you have questions about home loans or obtaining a mortgage before you start the home shopping proces? Or are you simply ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.