What is an Escrow account?

                                 

          Whenever you have done a Real Estate transaction, you have heard this word.  And sometimes when you are about to do a Real estate transaction, your Realtor talks about this account. 
          I will try to explain, what this account is about and why is it important. 
      When an offer is accepted, the earnest money is deposited into the Real estate brokers escrow account. At closing the earnest money is received back. 
          An Escrow account is basically a holding account. When you are buying a house , a title company, or a lawyer holds the deposits and the paperwork. So that details are worked out between buyer and seller. At the closing, the escrow officer, records the deed and the funds are distributed.
         After the sale, the mortgage lender sets up an account. The account is set up to pay certain property related expenses on the buyers behalf, for example, property insurance, homeowners insurance etc. Each month, you pay a portion of the estimated annual costs with your principal and interest. At year's end , the lender adjust the monthly escrow amount, based on the actual tax and other bills. If you have over paid, you are given the refund, if you underpaid,you are given the chance to repay the shortage by spreading out the payments.
           Most states require an escrow account. If you have an FHA you must have an escrow account. VA loans do not require an escrow account. If you a conventional loan, its upto a lender, whether they will require an escrow account or not. Escrows are always required on high risk loans , and less than 20% down payment on mortgage.
         The portion of your payment that is your property tax and home insurance are taken out of each payment and placed in the escrow until its time to make the remittance on these items, ensuring that the property is not at risk. This helps the home owners as well as the borrower of record. Without an escrow account, homeowners will be responsible for large property related bills in lump sums, and not always at convenient times. Failure to pay property taxes in timely manner will also result in fines and fees.
           Some states require lenders to pay interest on the money collected in escrow accounts. Check with your lender to find out if your funds are eligible for interest payments.
           The Federal Real Estate Settlement Procedure Act (RESPA) allows lenders to keep approximately two months of escrow payments in your account at all times, but state laws or your mortgage documents sometimes supersede that rule.
           You can also cancel the escrow account. Ask your lender about the rules. In some cases you need to have 20% in home equity and a record of on time payments. But do keep in mind that if you cancel the escrow, you will have to be very diligent about payment of your property taxes and homeowner insurance, on time.

 By Asifa Zia   KW Solutions Keller Williams Realty

 Search for properties 
www.buyandsellnorthvirginia.com

Need help in Buying or selling a home? 
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Asifa Zia--The Realtor YOU Want 
Licensed in VA
Keller Williams Realty Manassas VA
540-729-3470
aszia09@gmail.com
www.buyandsellnorthvirginia.com


              

            






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