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Escrow and Your Home Mortgage Payment

If you're buying a home and taking out a mortgage, there are going to be some items added to your base monthly principal and interest payment.  Your lender will want to be sure that taxes and insurance are paid on time and in full for as long as they are owed money on the home.  You'll see some additions up front to get your escrow account funded, which will be a minimum of a whole year's insurance premium and six or more months taxes.  These really aren't "closing costs," though you pay them at closing.  It's your money, but held by the lender to make the upcoming tax and insurance payments.  These should be considered carrying costs of owning a home.  So when looking at the cash you are coming in with to closing, don't be quick to add in these "pre-paid" items into your lenders "closing costs."  They are not a part of the lenders cost to close because you would have the taxes and insurance on the home whether you paid cash for home or if you inherited the home.  These are also not part of your annual APR % which tells you once again it's not a lender cost.

The lender does a calculation to determine how much money they need to collect from you each month in addition to the loan principal and interest in order to keep enough money in escrow to pay the taxes and insurance for you in the future.  There are legal limitations on how much they can hold, but taxes and insurance premiums change over time.  If the lender sees a shortfall coming, they can adjust your escrow payments upward within their legal limitations.  If they do, you'll get a notice that your monthly payment is increasing.  On the other side, if they find that the account is growing too much, they'll notify you and reduce your payment and send you a check in the mail for the amount your annual escrow account is overfunded.

You will receive yearly escrow account summary statements showing how much is in the account and when and how much was paid out on your behalf.  It's a report you'll want to read and watch over time.  As Las Vegas property taxes are declining, many of us have noticed our lenders sending checks to us in the mail due to overrages in our escrow accounts.  In previous years when property taxes were increasing, it was common to get an extra bill in the mail from our lender for the amount our escrow account was underfunded for the upcoming tax year.

If you ever have a question about your escrow account and how this method of collection and payment works for your scenario, please do not hesitate to contact me.  This can be especially tricky for First Time Home Buyers and I am here to help.

Casey Moseman

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