What's Escrow Anyway?

It's important that I state this first. I am not a loan officer, nor am I giving you finaincal advice, I'm just explaining what this type of account is for your information. Everyone on the same page? If you have questions of an exact financial nature, go talk to your indicival loan officer. Got it? OK...

Let’s break down what an escrow account is in the context of a mortgage. 🏠

What Is an Escrow Account?

An escrow account, also known as an impound account, is a financial arrangement set up by your mortgage lender. Its purpose is to manage certain property-related expenses associated with homeownership. Here’s how it works:

1. Funding the Account:

   • A portion of your monthly mortgage payment goes into the escrow account.
   • This money accumulates over time, building up a reserve.

2. Expenses Covered:

   • The funds in the escrow account are used to pay specific expenses related to your property.
   • These expenses typically include:
     • Property Taxes: Escrow accounts cover your annual property tax bill. Instead of paying the entire amount in one lump sum, you make smaller monthly contributions.
     • Homeowners Insurance: The account also ensures that your homeowners insurance premiums are paid on time.
     • Private Mortgage Insurance (PMI): If your down payment is less than 20%, lenders often require PMI. The escrow account helps manage these payments as well.

3. Predictable Payments:

   • By spreading out these costs over 12 monthly payments, the escrow account ensures predictability.
   • You won’t face sudden large bills for property taxes or insurance.

4. Lender Oversight:

   • Your mortgage servicer (the company that manages your mortgage) oversees the escrow account.
   • They calculate the necessary contributions based on your tax and insurance bills.

5. Adjustments:

   • The amount required for escrow can change from year to year.
   • Your servicer recalculates your escrow payments annually based on the previous year’s expenses.

Why Is Escrow Important?

• Protection: Escrow protects both you (the homeowner) and the lender.
  • It ensures that property taxes and insurance are paid promptly.
  • For homebuyers, it safeguards the earnest money deposit during the purchase process.
• Convenience: Instead of managing separate payments for taxes and insurance, you make a single monthly payment.
• Peace of Mind: Knowing that your essential expenses are covered provides peace of mind.

Remember, an escrow account simplifies financial management and helps you stay on top of your homeownership costs. 🌟

Happy House Hunting!

Jennifer Delong, Realtor Front Porch Realty 870-275-5287 (Mobile) PB/Office: Lisa Loggains (870) 243-7222