August 8th, 2022
Any homeowner would tell you that an escrow account can help you manage your finances more proficiently. You don’t have to think about lump sums for taxes and insurance premiums, and their dues. Each month you pay one installment of a large annual or semi-annual payment, and you are done. An escrow analysis is an essential part of managing those finances.
An escrow analysis is essentially a periodical review of your escrow account. That way, your escrow holder knows if there will be enough money in your bank account for the next payment. The escrow analysis statement provides information about the ending balance of your escrow account. It lists the total amount remaining after covering your current obligations.
In this article, we’ll go from the beginning and explain the purpose of escrow accounts and guide you through your average escrow statement, so you know what awaits you on the other side of homeownership.
You might think, ‘’Why can’t I pay these costs on my own?’’. Well, your lender might have requested this third-party account because it is the safest way to ensure that annual payments are paid in full and on time. This is their way of making sure you will not spend the money for property taxes on something else that might be more urgent at the moment.
The lender owns a legal title to your property and is responsible for every lien on it until the loan is paid off. That is why your homeowner costs and their unfulfillment present a liability to a lender. Additionally, escrow accounts help you manage your home budget and protect you from lump sums during the holidays when you probably have other expenses.
So, when you pay your monthly mortgage payment, together with a mortgage premium installment and an added rate, you will be paying a certain escrow amount. That amount varies from homeowner to homeowner and depends on the state or county, the size of the house, and even the neighborhood.
If you use an escrow account, you will receive an escrow disclosure statement every year. This document is actually a byproduct of an escrow analysis.
An escrow account is a type of savings account that holds your money, and you cannot make withdrawals from that account. It protects you from unexpected costs. Any amount of money you put on that account you cannot simply take back.
However, an escrow analysis serves as a tool to check how much money is there and how much money is supposed to be there. If the two don’t coincide, there will need to be a rebalancing of your account.
The beginning balance is the amount you need in your escrow account in order to ensure there are enough funds to pay your real estate tax and insurance premiums for the upcoming year. A projection summary shows the amount you should expect to spend each month throughout the next twelve months.
Rebalance can show two things. Either you have too much money in your bank account or too little. An escrow analysis is usually done in the first few months of the year after all expenses for the past year have been paid. If during that time you have a residual, your escrow holder will send you a check – a refund check.
If the escrow analysis shows that you owe money, it means that your property tax and homeowner's insurance might be higher than before. You will have two options presented:
For a homeowner, an escrow refund is something like a breeze of fresh air. Most envelopes that come their way are either bills or statements. However, sometimes, an escrow analysis shows that you have an unneeded surplus and your mortgage servicer sends you your money back.
This check will always be more than $50 because that is the maximum amount of excess money that can be considered a surplus. Homeowners who paid off their mortgage before the last disbursement can expect their full yearly insurance premium and tax installments to arrive in the mail.
Most homeowners don’t know what an escrow shortage is until it happens to them. But it’s one of those things that seems like it shouldn’t exist — and yet it does. And it’s happening to many people across the nation.
The average homeowner spends $1,500 per year on escrow fees. Some spend even more. A recent study found that the median amount spent annually on escrow fees was $3,800. For borrowers who bought homes during the housing bubble, the average escrow fee hit $6,400.
Why do escrows run dry? Sometimes it’s because the homeowner hasn’t paid enough taxes or insurance premiums. Other times, it is because the property has undergone some major construction that adds to the value.
But it isn’t always easy to determine whether you have an escrow shortage. The truth is that most escrow problems aren’t obvious. They’re hidden inside paperwork that you never see. And that’s where we come in. We’ve put together this guide to help you figure out whether you have an issue with your escrow. Once you know, you can take action to fix it.
After your escrow holder has ended the escrow analysis, they will create a statement - a visual review of all yearly transactions to and from your escrow account. You’ll then receive the statement, and if there is a need for a rebalance, you’ll receive it along with the refund check or a request to pay what you owe.
It is essential to know how to read your escrow account statement. There will be a lot of numbers, but don’t let them confuse you. There will be a column that presents all your monthly escrow payments. Parallel with that column will be another one that presents you with each disbursement. Those are not done monthly, but annually or semi-annually.
The third column is called projected escrow balance, and there it shows the next 12 months in escrow payments. Those projections always include a few hundred dollars more than what you’re actually due, in case of some unexpected raised costs.
There will be an account history where you can compare last year’s projected payments with the actual costs of the account. This will help you understand next year's installments much better. If there is a surplus or a shortage, it will be explained in more detail in a separate section.
When you are working with a professional that cares about you, there can’t be unanswered questions. There are a lot of escrow companies that keep their clients in the dark, but Lightspeed Escrow isn’t one of them.
Moreover, we are a team of real estate professionals who know that escrows can sometimes be confusing. We are more than open to answer any and all questions that you may have about escrows, escrow analysis, and more.
We are reliable and fast in all real estate transactions. Contact us for all your escrow needs.