Navigating the intricacies of homeownership can be both exciting and, at times, overwhelming. One aspect that often raises questions is the mysterious entity known as the “escrow account.” What exactly is it, and how does it fit into the grand scheme of homeownership?

Let me break it down for you! 

What are escrow accounts?

An escrow account is like a specialized savings account set up by a mortgage lender on behalf of the homeowner, to manage certain expenses related to the property, such as property taxes, homeowner’s insurance, and mortgage insurance. It is typically required for certain types of mortgages, especially those with higher loan-to-value ratios or for properties in specific locations.

How does this help you?

So part of your monthly mortgage payment is held back and saved by the lender to ensure that these expenses are paid on time, reducing the risk of property tax liens or lapses in insurance coverage, which could threaten the lender’s collateral (the property itself). Your mortgage servicer will manage the escrow account and pay these bills on your behalf.

Your lender may also require an “escrow cushion,” as allowed by state law, to cover unanticipated costs, such as a tax increase. If the estimated amounts are higher than actually needed, the overage balances can be refunded or credited to you.

Note that if you have opted to escrow taxes and insurance, and you sell your home, your escrow account balance will be refunded to you post-closing.  If you have sold your home per a divorce settlement agreement or court order, be sure to check out (add link to blog post about Escrow Account post divorce) regarding the fate of your escrow account balance post-sale.

How I can help you with understanding escrow accounts

Rest easy, knowing that your money is in safe hands, making the journey to homeownership smoother than ever!

As always, please reach out to me if you have any questions about this topic, advantages and disadvantages of escrow, and/or other real estate matters.  I’m here to help!