You may ask: What is Escrow Account when buying home?
When you buy a home in Phoenix AZ with mortgages, you typically pay extra money into escrow accounts every month, along with their home loan payments. When you open an escrow account for your mortgage, the mortgage company will make payments on your behalf for real estate property taxes and premiums for insurance required to protect the property, such as homeowners insurance. This is ensures that your bills are paid in full and on time, without you having to budget for these large payments separately.
Do I really need an escrow account?
Depending on your loan program and your mortgage company, you may be required to have an escrow account. For example, if you have a loan guaranteed and insured by the Federal Housing Administration (FHA), you must have an escrow account.
Many homeowners prefer their lenders to handle their insurance and tax payments this way in order to avoid the danger of being unprepared for a large annual or semi-annual bill.
How much money do I need in escrow account?
With escrow account, your mortgage company will collect one-twelfth of the estimated annual bill for taxes and insurance each month. They will take the amount you owe in property taxes and homeowners insurance for the year is divided into 12 parts. Say your annual property taxes are $2,000 and your home owner insurance is $400. Your mortgage payment to your financial institution would include $200 each month to cover those costs.
Your mortgage payment
If you look at your mortgage payment statement, you will see Principal & Interest and Escrow. Principal and Interest also refer as “P&I” section consisting principal and interest. Escrow payment is used to pay taxes and insurance, it is referred to as “T&I”. The sum total of all elements inside your mortgage payment statement is then referred to as “PITI”, for “Principal, Interest, Tax, and Insurance”.
Will my monthly mortgage payment increase?
Since your monthly mortgage payment consisting of PITI, your monthly mortgage payment may increase as time goes by. If you have fixed rate mortgage, your P&I will always the same. The only difference will be your T&I. If you property tax or home owner insurance premium increase, your escrow will increase.
Depending on your mortgage company, the mortgage company will review your account at least once a year to make sure they are the right amount to cover your projected taxes and insurance premiums. If the property taxes and homeowners insurance premiums were higher than projected, your escrow will have a shortage and which will appear on your escrow account disclosure statement.
You can pay an escrow account shortage in one of two ways: You can pay the shortage amount OR pay the shortage amount over 12 months, with 1/12 added to each monthly mortgage payment.
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