Jump to content

avoiding problems with escrow accounts


humdinger
 Share

Recommended Posts

I purchased my first home in July of 2004, thanks to all the information and problems I have read about in this forum I think I have sucessfully avoided any major problems.

Now onto my question. It concerns my escrow account. When I purchased my home I researched what my taxes and insurance would be. I also learned about the tax exemptions I was entitled to. In my county the owner of the building on March 15 sets what exemptions are permissable. In my case the owner of the building on march 15, 2004 was a bank. That means I will have to pay additional prop tax for one year. Since I have anticipated this and know the approximate amount I have paid additional money into my escrow account, so the money is there when it is needed. I would like to avoid having my required monthly mortgage payment changed. I guess I am thinking that as long as I have the money already in escrow the mtg servicer won't raise my payment. Any advice?

Thanks

Julie

Link to comment
Share on other sites

I purchased my first home in July of 2004, thanks to all the information and problems I have read about in this forum I think I have sucessfully avoided any major problems.

I certainly hope so. I would have to feel real bad if not. P.S. Finally got some referrals going into AMICA. She commented on you being one "sharp cookie."

Now onto my question. It concerns my escrow account. When I purchased my home I researched what my taxes and insurance would be. I also learned about the tax exemptions I was entitled to. In my county the owner of the building on March 15 sets what exemptions are permissable. In my case the owner of the building on march 15, 2004 was a bank. That means I will have to pay additional prop tax for one year. Since I have anticipated this and know the approximate amount I have paid additional money into my escrow account, so the money is there when it is needed. I would like to avoid having my required monthly mortgage payment changed. I guess I am thinking that as long as I have the money already in escrow the mtg servicer won't raise my payment. Any advice?

Escrow accounts are recalculated every year. In your situation, you will receive homestead exemptions ($35,000) and a state tax credit (20%). This will reduce your property taxes substantially. Property taxes are also one year in arrears, so the benefit willbe for taxes payable in May 2005 are not actually paid until May 2006. I would think that your escrow account may not reflect the benefit until then. Now here's the catch, you will have to "smack them upside the head" to get a reduction, since your escrow account will be determined in November or December (your original closing month). They will not have this information at that time.

If you do nothing, your escrow account will stay near the same level and the following year, you will get a refund check of the difference. Why let them hold your money for a year?

I pulled a post of mine from another board which shows how an escrow account should be figured.

Link to comment
Share on other sites

When you are purchasing or refinancing a home many lenders may ask the question whether or not you want to establish an escrow account. FHA/VA require the establishment of escrow accounts to handle timely payments to insure their protection against losing the property in a tax sale (from thehomeowner not paying taxes on the property), or loss from an unpredictable event that would be covered by homeowners insurance.

An escrow account is a separate account set up by the mortgage servicer to handle the disbursement of payments for property taxes, property insurance, Private Mortgage Insurance, flood insurance (if required), and sometimes Homeowner Association Dues for your immediate community.

courtesy fanniemae

Figuring Escrow Accounts:

How do I figure how much money the lender is allowed to require in my escrow account?

HUD cannot figure out your own escrow account cushion and payments. Please use the following steps and example to help you estimate the amount of money you may be required to put into your own escrow account, either a new or existing account, under aggregate accounting:

1. List all the payment amounts for items that will be paid out of your escrow account, and when paid, for the next 12 months (e.g., taxes- $1200 -- $500 paid July 25 and $700 paid December 10; hazard insurance -- $360 paid September 20).

[if you have a payment like flood insurance, which is paid every 3 years, you must project a trial balance over that 3-year period.]

2. Divide this total amount by 12 monthly payments ($1560 divided by 12 = $130).

3. Create a trial running balance for the next 12 months listing all payments to the escrow account and all payments out of the account, when these items are paid.

4. Increase all the monthly balances to bring the lowest point in the account (December -$780) up to 0.

Month----Pay to Escrow-----Disbursement------Trial Bal---Balance

June------paid at closing--------0------------------780---------780

July-----------130---------------500 (taxes)-------370---------410

August--------130----------------0------------------240---------540

September---130---------------360(insurance)---470---------310

October-------130----------------0-----------------(-340)-------440

November----130----------------0------------------(-210)------570

December----130--------------700* (taxes)-------(-780)-----* 0

January------ 130----------------0------------------(-650)----- 130

February------130----------------0------------------(-520)-------260

March---------130-----------------0----------------- (-390)------390

April-----------130----------------0------------------(-260)------520

May------------130----------------0------------------(-130)------650

June-----------130-----------------0---------------------0--------780

The above illustration would be a perfect world scenario to the consumer, however, the balance column shows the actual balance would be a perfect world situation (the withholding amounts equal the actual disbursements). If you look at the trial balance column, you will notice that the actual balance in the account goes to a negative amount once the July installment of property taxes are paid. Therefore to properly figure what is needed in the escrow account must be figured in a way so that there is no interim minimum balance.

Federal law has establihed that the lender may cushion the amount of the minimum escrow balance to two months additional reserves.

Add any cushion your lender requires to the monthly balances. The cushion may be a maximum of 1/6 of the total escrow charges (1/6 of $1560 = $260). Therefore, your actual escrow account statement should look a little more like this:

Month Pay to Escrow Disbursement Trial Bal Balance

June-----paid at closing---------0-----------------1040--------1040

July-----------130--------------500 (taxes)--------670----------670

August-------130----------------0------------------800----------800

September---130--------------360 (insurance)---570----------570

October------130----------------0------------------700----------700

November---130----------------0-------------------830---------830

December---130--------------700 (taxes)-------* 260---------260

* Reflects the minimum allowable escrow balance allowed by law.

January------130----------------0------------------390----------390

February-----130----------------0------------------520----------520

March--------130----------------0-------------------650---------650

April----------130--------------- 0------------------780----------780

May-----------130---------------0-------------------910---------910

June----------130----------------0-----------------1040--------1040

In this example, $1040 is the maximum amount the lender should require in the account. The account should fall to the cushion at least once during the year. In this example, it is in December ($260).

New Accounts -- In this example, if you settled May 15, and the first payment was due in July, $1040 would be the maximum amount you should be required to place in an escrow account. If your lender requires less than the maximum cushion, the amount would be less.

Existing Aggregate Accounts -- In this example, during escrow analysis, the lender would compare the required amount of $1040 to the actual balance in your account in June. For example:

If your balance is $1076, there is a surplus of $36. Your lender may choose to apply any surplus less than $50 to future payments, reducing your monthly escrow payment to $127, or may choose to return the surplus to you.

If your balance is $1090, there is a surplus of $50. The lender must return any surplus of $50 or more to you within 30 days of the analysis.

If your balance was $940, there is a shortage of $100. This amount is less than one month's escrow payment and the lender may ask you to pay this amount within 30 day or may spread it out over a year.

If your balance was $800, there is a shortage of $240. The lender must spread the collection over at least 12 months. If the lender spreads the shortage over 12 months, your monthly escrow payment would increase to $150.

If you have a deficiency in your account (where the lender has to use his own funds to pay a bill), you may have to reimburse the lender sooner than over 12 months. If the deficiency is less than one monthly escrow payment, you may have to repay the lender in 30 days. If the deficiency is more than or equal to one monthly escrow payment, the lender may require you to repay the amount over 2-12 months.

It is important to the homeowner that they keep track of what the proper amounts of escrows are required. It is also required by law that the mortgage servicer send you an annual statement of your escrow account history for the previous year, and estimated expenditures for the following year. For the majority of homeowners, this will only include your property taxes and homeowners insurance. If your property taxes or homeowners insurance rise significantly during the course of the year, prepare yourself for the adjustment to your escrow account.

Link to comment
Share on other sites

Hi Bruce :D

First thanks for using Amica. I can't say enough good things about this company. Early in December I had to get a new car, after I signed the deal and got home I called my current car insurance carrier ( the one that uses the little green reptile) and asked for a quote on the new car, I almost fell off my chair. So I called Amica, my homeowners insurance and the quote was HALF ! I had to double check that they were not quoting a half year. Great company.

A few days after I closed I went to the ascessors office and filed for my exemptions, Homestead (35,000) and Mortgage exemption (3000).

I'm not familiar with the 20% state credit, is this a credit I'll use on my tax return or an exemption used by the ascessor preparing my tax bill?

I created a running balance of the escrow account with the additional money I am paying the account will not dip below the 2 month cushion at any point.

Julie

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.. For more information, please see our Privacy Policy and Terms of Use.