When you're purchasing a home, it can be confusing and stressful to make sure you've got everything covered. Escrow helps you avoid any surprises by setting aside the needed funds for annual payments. If you don’t want to find yourself short of funds when it comes time to make rather large, annual payments associated with your mortgage -- like property taxes and insurance -- you can set up an escrow account and combine those bills with your monthly mortgage payment. Our experts at INB can set up your escrow account and simplify the process for you.
Curious about how escrow works? Here are some answers to frequently asked questions:
1. What is escrow and what can be typically be paid through escrow?
Escrow means arranging scheduled payments with a lender. Escrow funds are typically collected to pay real estate taxes, homeowners insurance, and monthly PMI (private mortgage insurance) premiums, if applicable. These funds are added to the total of your monthly mortgage payment, so you don't have to worry about saving enough money for these annual fees. Escrow accounts can also be used for other mortgage-related fees, such as homeowners’ association fees or any other required insurance policies, such as flood insurance.
2. How does escrow work? View video here.
Escrow funds are typically collected to pay real estate taxes, homeowners insurance, and monthly PMI (private mortgage insurance) premiums, if applicable. Escrow can also be for other mortgage-related fees such as homeowners’ association fees or any other required insurance policies, such as flood insurance.
3. What is an escrow analysis?
Banks will conduct an escrow analysis every year. A lender will review your account to make sure the funds set aside for escrow will cover your projected disbursements for the year. If any of the amounts have changed from the prior year, your escrow payment will be recalculated. We will also ensure that any minimum balances on your escrow account are met. When the analysis is run, you will receive a statement in the mail. If any of your disbursements decrease at any time throughout the year and you want us to recalculate your escrow payments, please contact us.
4. Why is my escrow amount changing?
If, for example, your taxes or insurance premiums increase or decrease, this change will be reflected in the amount due for your escrow. Any changes will be outlined in your annual escrow analysis. This analysis protects you from any surprises when you get your annual bills.
5. What happens if I have a shortage in my escrow balance?
There may be a shortage in your escrow account if your taxes, insurance or any other projected amounts were higher than expected. If you experience a shortage, you may either pay it in full, or divide your shortage over 12 months and add it to your monthly mortgage payment. If the shortage is not paid in full, it will be automatically divided.
6. What happens if I have an overage in my escrow account?
If you experience an overage in your account of $50 or greater, we are required by law to send you a refund check. For an overage that is less than $50, we will apply that amount to your escrow balance, thus reducing the next 12 monthly escrow payments.
7. Why does my escrow account have a minimum required balance?
Requirements for a minimum balance are regulated by federal or state law. A minimum balance is equal to the lowest balance you are projected to owe for the next 12-month period, plus two months of escrow payments. Having the two-month cushion in your account allows your account to be able to absorb small, unexpected increases that would ordinarily overdraw your escrow account.
8. What criteria make escrowing mandatory?
Escrow is mandatory for loans that have a loan-to-value (LTV) greater than 80 percent. LTV is calculated by taking the loan balance and dividing by the lesser of the purchase price or appraised value. (The appraised value is used if the loan is a refinance.)
9. Where can I find more information about my escrow account?
We’re here to help! To speak to a mortgage representative at INB, please contact our loan department at 217-747-8633 or email firstname.lastname@example.org.
Reminder: do not send personal account information via email. If you choose this method of contact, please include a phone number and the best time we can reach you.