A common question from first-time homebuyers when purchasing their home is “What is a Mortgage Escrow Account?” A Mortgage escrow account is used to help borrowers save money for property taxes and homeowners‘ policy premiums. Escrows can help prevent financial mistakes and it puts you at ease to know your bank is responsible for paying your property taxes and hazard insurance.
Not everybody needs to set them up, but home buyers may benefit from using them. Property tax escrow account is generally required on loans with Loan To Value of more than 80%, e.g, buying a house and putting less than 20 percent down. Some mortgage companies require customers to establish an escrow account that pays the property taxes and hazard insurance. Other banks might offer it as an option for homebuyers. The monthly escrow payment is calculated by taking the total estimated tax and insurance expense for the coming year, and dividing that number by 12. In addition, if the mortgage company requires a minimum balance in the escrow account, they may add on an adjustment so that the balance never falls below the minimum balance.
If the estimated escrow amount collected is less than the actual property tax bill, then the homebuyer is responsible for the difference. If there is an overage, then you can expect a check in the mail.
Hopefully you found this post useful! If you would like more information about Washington DC real estate, please contact Jason Trotman at 301-452-4767. If you’re new to DC, I’d especially like to extend a warm welcome. I value the opportunity to help my clients find the home that meets their needs and provide them with professional, reliable service.