what is an escrow account?
TRANSCRIPT
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WHAT IS ANESCROW ACCOUNT?
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When something is in escrow, it means it is held by a third party, and an escrow account is one set up to hold money, documents and other items related to a transaction.
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Escrow accounts are most common in real estate and they are used for a couple of different purposes.
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AT SALE AND CLOSING
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When you agree to buy a home, you usually are asked to put down a "good faith" deposit that shows you are serious about going through with the sale.
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This money will be held in an escrow account until the transaction closes.
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Also, any funds you have to contribute to the closing, such as real estate taxes, also will be held in escrow until the sale closes and all aspects are settled.
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MORTGAGE ESCROW
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The type of escrow account with which most people are familiar is the escrow account related to your mortgage.
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Lenders prefer -- and some require -- an escrow account into which you pay a monthly amount toward your real estate taxes, homeowners insurance and mortgage insurance if you have it.
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A lender can legally require you to have an escrow account if you have less than 80 percent equity in your home.
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If your equity is 80% or more, then you can opt out of escrow. It is best to opt out when you get the loan, because it's very difficult to do so later.
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However, your lender can charge a waiver fee or bump up your interest rate if you decide to opt out.
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HOW DOES IT WORK?
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When you have an escrow account, your lender divides your home insurance premium, real estate tax bill and mortgage insurance premium by 12 …
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… and then adds those totals to your mortgage principal and interest payment so that you pay all those amounts in one payment each month.
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Then your lender is responsible for paying your taxes and insurance when they are due.
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Your lender also is responsible for adjusting your payment up or down to account for increases or decreases in your taxes and insurance.
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ADVANTAGES
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There are big advantages to escrow accounts for both lenders and borrowers.
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For the lender, having an escrow account assures that the house is insured and that taxes are being paid so no liens are filed on the house.
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For the borrower, it offers the convenience of one monthly payment and not having to budget for big once- or twice-a-year tax payments.
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DISADVANTAGES
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There really is no disadvantage to the lender of having an escrow account, other than the time and expense needed to administer it.
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For borrowers, the one big drawback is the potential lost earnings on the money put into escrow.
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The federal government does not require lenders to pay interest on money put into escrow and only a handful of states do.
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That means you are missing out on some potential interest and investment returns on the money you put into escrow.
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However, many people are willing to give that up in exchange for the convenience.
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Mortgage Originator Jimmy Vercellino, specializing in VA loans, helps veterans use their VA loan benefit to their greatest advantage.
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Be a proud homeowner today. For more details call 619-350-1951 or visit the site http://sandiego.valoansforvets.com/
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First Choice Loan Services Inc., DBA FCLS in CA 959 South Coast Drive, #490Costa Mesa, CA 92626Phone: 619-350-1951
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