Purchasing a home is a scary time for many new homeowners. Full of anxiety, the homeowner is found to Manipulate through fianancing options, as the closing date has finally arrived. With the real estate closing date comes a new set of issues involving the establishment of an real estate mortgage escrow account. For new homeowners, understanding the dynamics involved in the escrow account will provide for a more smooth and less anxious transition through the real estate closing process.
The word escrow is generally considered a legal term used to describe an establishment of a legal agreement in real estate. When purchasing a home, the real estate escrow account is established as an agreement between you and the mortgage company, or lender, is afforded the to ensure payment of specific monetary obligations. Let’s examine, further, the items which are included in an escrow account.
First, the escrow account will include an agreement for payment of real estate taxes. Under this agreement, the mortgage company agrees to ensure payment of real estate taxes on the property, annually, and, in exchange the homeowner will pay these taxes, in monthly intervals, as part of the mortgage payment. As the tax rates fluctuate, the tax assessor will notify both the homeowner and the lender of the change in rate and, in turn, the lending mortgage company will adjust the required monthly payment. As a general rule, unless there has been significant fluctuation in the real estate development, the monthly mortgage payment will not change drastically.
In addition to real estate taxes, the escrow account may also include a legal agreement to maintain homeowner’s insurance on the property. While homeowner’s insurance can include Mortgage Protection Insurance (MPI), Lender’s Placed Coverage and even standard homeowner’s insurance. By including the insurance premium into the mortgage, the lender is assured the dwelling is protected in the event damage occurs.
With real estate taxes and insurance requirements, escrow accounts may also include required homeowner’s association dues. Whether purchasing a home or a condominium, the property association dues are vital to ensuring and protecting the by-laws established by the association in which the dwelling is located. Without payment of these annual dues, the by-laws are violated or not applicable to the property.
Periodically, the real estate escrow account may reflect an overpayment which is attributed to fluctuations in tax rates and insurance premiums often not communicated to the lender promptly. Once communicated, the real estate escrow account adjustments may be slightly delayed so as to result in several months of overages. When this occurs, the lender may communicate, in writing, to advise of the escrow overage or credit and inquiry as to how the funds should be applied. Most often, a refund check is sent to the borrower. However, in some cases, the mortgage lender may opt to allow the escrow overage to be applied to the real estate mortgage loan balance.
As with any finincial life decision, purchasing a home can be a confusing and frustrating period. Escrow accounts are often a subject of discord for the homeowner as the various fees and payments required can significantly add to the basic monthly prinicple balance. In contrast, however, the establishment of an escrow account will ensure both homeowner and the mortgage company are protected against loss through guaranteed monthly insurance premium payments, payments of taxes and payments of any applicable homeowner’s associated fees and dues.
For more information regarding real estate escrow accounts, visit www.fanniemae.com.