 First Time Home Buyer Education Center
Icon Mortgage Lending is Mid-Michigan's most experienced First Time Home Buyer Team. This page is to help pass that experience and knowledge on to you and empower you to become the most savvy buyer that you can possibly be!
Understanding Escrow Accounts
What is it?
An escrow account is basically a mandatory savings account to pay your taxes and insurance from. Every month you will pay your mortgage payment and a portion of that payment will go to the mortgage and a portion will go to the escrow account. When your tax and insurance bills come due, they will be paid from your escrow account company automatically. You will never see a tax or insurance bill, yet they will get paid.
Why do you need it?
With almost all loans an escrow account is required by the lender you are getting your loan from. The same as with your mortgage payment, if you do not pay your taxes, you will face foreclosure. Instead of being foreclosed on by your lender, you will be foreclosed on by Uncle Same. The possibility of tax foreclosure threatens your lender’s ability to ensure you repay them. Hence, they require that you have an escrow account so that you can’t simply stop paying your taxes.
How will this affect your closing?
You will need to fund the escrow account with enough money to make not only the next upcoming payment, but enough to make sure you never get behind on future payments. The amount collected will change slightly depending on the time of year you close, but in general you should plan on 3 months of your monthly Home Owner’s insurance payments and 8 months of your monthly Property Tax payments to be collected at closing.
These reserves, while painful at closing,
will end up making you very happy in the long run though. When your taxes go up- as they inevitably do- this will cushion the blow to your monthly payment and make the hike a more steady increase and easier to deal with.
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The Icon Mortgage Lending Team is comprised ONLY of Nationally Certified Mortgage Loan Originators approved through the NMLS Nationwide Mortgage Licensing System
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