Re: mortgage question

Lipstickdiva · ‎03-10-2010

@Mominohio wrote:
I don't mean to sound dumb here, but why do people have an escrow account with their mortgage?

I know back when I was really young, and had zero money, we had to have our taxes and maybe insurance rolled into our mortgage because we got a federal loan of some type for people with little money down, so I guess that was an escrow of some kind?? They collected a portion of the yearly amount for those things each month to ensure they were paid, then made the payments for us?? Is that how that works. I know at the time I was 'offended' as I always paid my bills, but it was the only way to get into a home loan with little money down, and we were young and poor.

So if I have that right, what an escrow is for, my next question would be, if you can get a conventional loan, why would you want an escrow? Why would a person not just prefer to pay their taxes/insurance on their own, not run through the lender? Our second home we had 20% down, and wanted to have all other expenses not included in the financing, if that makes sense. We pay our taxes and insurance on our own, not through the house payment monthly.

Is there some reason I don't know/understand why people actually WANT to put those through escrow accounts?

Thanks for helping educate me!

@Mominohio we had a conventional loan but we wanted our taxes put in escrow and paid by my lender. It was just one less thing we had to worry about or even think about. We didn't want to add our insurance in but the lender wouldn't allow that anyhow.

Our county will also let you start an escrow account with them and deposit the money monthly for your taxes and then they withdraw it twice a year for the payment.

It doesn't cost anything so why not do it? Our taxes weren't part of the mortgage loan. Our payment was based on the actual loan amount and then they took our yearly tax bill, divided it by 12 and added that to our payment. I could have contacted the lender at any time and told them I wanted to pay the taxes on my own. That would have lowered my monthly payment but then in July and Febuary, I had to make that lump sum payment.

gertrudecloset · ‎02-13-2021

@Mominohio wrote:
I don't mean to sound dumb here, but why do people have an escrow account with their mortgage?

I know back when I was really young, and had zero money, we had to have our taxes and maybe insurance rolled into our mortgage because we got a federal loan of some type for people with little money down, so I guess that was an escrow of some kind?? They collected a portion of the yearly amount for those things each month to ensure they were paid, then made the payments for us?? Is that how that works. I know at the time I was 'offended' as I always paid my bills, but it was the only way to get into a home loan with little money down, and we were young and poor.

So if I have that right, what an escrow is for, my next question would be, if you can get a conventional loan, why would you want an escrow? Why would a person not just prefer to pay their taxes/insurance on their own, not run through the lender? Our second home we had 20% down, and wanted to have all other expenses not included in the financing, if that makes sense. We pay our taxes and insurance on our own, not through the house payment monthly.

Is there some reason I don't know/understand why people actually WANT to put those through escrow accounts?

Thanks for helping educate me!

@Mominohio in my State an escrow account is always managed by the bank/lender until the mortgage is paid in full. It's required. No way around that until you're free of payments. Then you're responsible for setting aside your own portions for property taxes, homeowner's insurance and so on. That's what the escrow is for. To pay your property taxes and homeowner's insurance (at least in my state).

A Negative Mind ~ Will give you a Negative Life

gertrudecloset · ‎02-13-2021

Escrow Accounts For Taxes And Insurance

After you purchase a home, your lender may establish an escrow account to pay for your taxes and insurance. After closing, your lender (or mortgage servicer, if your lender isn’t servicing your loan) takes a portion of your monthly mortgage payment and holds it in the escrow account until your tax and insurance payments are due.

The amount required for escrow is a moving target. Your tax bill and insurance premiums can change from year to year. Your servicer will determine your escrow payments for the next year based on what bills they paid the previous year. To ensure there’s enough cash in escrow, most lenders require around 2 months’ worth of extra payments to be held in your account.

Your lender or servicer will analyze your escrow account annually to make sure they’re not collecting too much or too little. If their analysis of your escrow account determines that they’ve collected too much money for taxes and insurance, they’ll give you a refund.

If their analysis shows they’ve collected too little, you’ll need to cover the difference. You may be given options to make a one-time payment or increase the amount of your monthly mortgage payment to make up for a shortage in your escrow account.

Rocket Mortgage: Escrow what is it And How Does it Work?

A Negative Mind ~ Will give you a Negative Life

Mominohio · ‎08-08-2010

@gertrudecloset wrote:
@Mominohio wrote:
I don't mean to sound dumb here, but why do people have an escrow account with their mortgage?

I know back when I was really young, and had zero money, we had to have our taxes and maybe insurance rolled into our mortgage because we got a federal loan of some type for people with little money down, so I guess that was an escrow of some kind?? They collected a portion of the yearly amount for those things each month to ensure they were paid, then made the payments for us?? Is that how that works. I know at the time I was 'offended' as I always paid my bills, but it was the only way to get into a home loan with little money down, and we were young and poor.

So if I have that right, what an escrow is for, my next question would be, if you can get a conventional loan, why would you want an escrow? Why would a person not just prefer to pay their taxes/insurance on their own, not run through the lender? Our second home we had 20% down, and wanted to have all other expenses not included in the financing, if that makes sense. We pay our taxes and insurance on our own, not through the house payment monthly.

Is there some reason I don't know/understand why people actually WANT to put those through escrow accounts?

Thanks for helping educate me!
@Mominohio in my State an escrow account is always managed by the bank/lender until the mortgage is paid in full. It's required. No way around that until you're free of payments. Then you're responsible for setting aside your own portions for property taxes, homeowner's insurance and so on. That's what the escrow is for. To pay your property taxes and homeowner's insurance (at least in my state).

@gertrudecloset

OK, I was wondering if some places, it was an actual requirement. Here it is definitely not, and I can't imagine not having a choice.

I can see where this makes sure the insurance and taxes are kept current, because the lender knows right away and first hand if you aren't making your payments, and they can intervene before things get way behind.

I'm constantly amazed at how different things can be from state to state, or region to region.

Thanks for the answer