5 Questions You May Have About Your Escrow Account

Many homeowners put money into an escrow account each month, sometimes without even realizing they're doing it. A portion of your monthly mortgage payment is broken out into this separate account. The money in the escrow account goes to pay bills like insurance and property tax, this way you do not have to save separately for these expenses that go hand-in-hand with homeownership. Arrowhead Title, Inc. has provided a list of frequently asked questions about escrow accounts.

1. Q: Why am I required to have an escrow account?
A: An escrow account is usually required if the down payment on your home was less than 20%. Property taxes and insurance premiums are a few of the large expenses this account helps pay. You make one combined mortgage and escrow payment each month and your mortgage company will then deposit a portion into your escrow account. When your property tax and insurance bills are due, they are paid on your behalf.

2. Q: What is an escrow analysis?
A: As required by law, once a year, your escrow account is reviewed. The process is called an escrow analysis and this statement includes the results of the review. It includes a history of the activity on your account this year and the expected activity for next year.

3. Q: What is an acceptable minimum balance?
A: An escrow account needs to have enough money in it to pay for your property taxes and insurance. To do that, your mortgage company requires that you keep a minimum balance in the account. For most accounts, the minimum balance equals about two months of escrow payments. Some accounts have a smaller minimum balance. This additional amount in your account helps to cover increases in taxes and/or insurance that may occur.

4. Q: How is my escrow amount determined?
A: Your mortgage company will estimate how much your taxes and insurance will cost over the next 12 months. This number is based this on your loan closing documents, taxing authority, and insurance company information. That number is divided by 12 months and then added to your monthly mortgage payment. An escrow account amount may be adjusted throughout the year, or after a yearly escrow analysis to help determine if your account keeps the minimum balance required throughout the year. At this point your escrow amount may be adjusted as seen fit by your mortgage company.

5. Q: Why did my monthly escrow payment amount increase?
A: There are a few reasons your payment amount may have increased. In addition to changes in property taxes and/or insurance premiums, tax reassessments and insurance carrier changes may attribute to a change in your escrow amount. Due date change and fewer deposits than expected can also cause the payment amount to rise.

An escrow account is in place to help you make required payments on your home mortgage. For many buyers at the Lake of the Ozarks, home insurance and property taxes are an example of these required payments on a home. If you are in the market to purchase a home at the Lake of the Ozarks, we would be honored to help you with your property purchase.
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Lake Ozark, MO 65049


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