09/10/2024
Understanding the escrow process can help you better manage your monthly mortgage payments. Here’s a quick rundown of the top 4 things I like to make sure my clients know about an escrow account when they’re gearing up to close on their new home!
What is Escrow?: An escrow account is a special account set up by your mortgage lender to hold funds for paying your property taxes and homeowner’s insurance. Instead of paying these expenses in one large lump sum once or twice a year, you contribute to the escrow account through your monthly mortgage payments.
Why is it Important?: It ensures your taxes and insurance are paid on time, so you don’t have to worry about missing deadlines.
How Does it Affect Your Payments?: Your lender estimates the yearly amount needed for taxes and insurance, then divides it by 12. This amount is added to your monthly mortgage payment.
Example: If your annual property taxes are $2,400 and your homeowner’s insurance is $1,200, your escrow payment would be $300 per month ($2,400 + $1,200 = $3,600 / 12 = $300). This $300 is added to your principal and interest mortgage payment. So, if your principal and interest payment is $1,200, your total monthly mortgage payment would be $1,500 ($1,200 + $300).
Are Escrow Accounts Required? Lenders require escrow accounts on all Government backed loans, aka FHA, USDA, VA. However, an escrow account may not be required on a Conventional loan depending on the down payment amount. Always ask your lender if you’re unsure!
Understanding escrow can make budgeting easier and give you peace of mind. Have questions or need more details? I’m happy to help!
Bobby Otwell | Loan Officer
M: 417-259-1274 | W: botwell.gershman.com
