What Is an Escrow Account and How Does It Work?
When you have a loan with an escrow account, part of your monthly payment will be set aside in an escrow account that is administered by us.
- Purpose: The escrow account holds funds to pay your property taxes, homeowners insurance, and if applicable, flood insurance on your behalf. When tax and insurance bills come due, we, as the servicer, will use the escrow funds to pay the tax and insurance bills.
- Why It’s Needed: Escrow accounts are primarily needed to ensure that taxes and insurance on the home are paid on time. This protects the collateral from any tax liens or lapses of insurance coverage.
- Cushion: A cushion (or escrow reserve) is a dollar amount maintained in your escrow account to cover unanticipated increases in property taxes or insurance premiums. This amount typically does not exceed 1/6th of the total amount of items paid out of the escrow annually.
- Annual Review: At least once a year, we, as your servicer, will perform an escrow analysis to ensure sufficient escrow funds are collected. The escrow portion of your monthly payment may adjust up or down if taxes or insurance have changed. The analysis is designed to address any shortages or overages caused by these changes.
- Shortages & Overages: If your escrow balance is short, you may need to pay a higher escrow amount in a lump-sum or in the monthly payment over time (typically over 12 months.) If there’s an escrow overage, you’ll receive a refund or a lower future payment.
- What's Not Included: Occasionally, your local government may charge you an additional amount affecting your property. Those amounts are not covered by your escrow account and will remain your responsibility. Some of the bills you are responsible for paying include, but are not limited to, supplemental, levies, special assessment, solid waste, utility, HOA (Homeowner Association), and water/sewer usage bills. Your escrow account does not include funds to pay these bills. If you receive these types of bills, it is very important that you pay it, because we have no knowledge of these bills and did not plan for payment of these bills from your escrow account.
Information is provided for explanation purposes only. Each escrow analysis is determined by your unique situation.
Still have Questions?Contact us about your escrow account via email or call (888) 226-8929 account.