Being a homeowner means more than just paying down your principal loan balance each month. You’re also responsible for other home-related expenses like annual property taxes and insurance. Without an escrow account, these expenses would be paid annually. This large annual payment can be a burden to keep track of and budget for.
Mortgage escrow accounts are created so you can easily pay home-related expenses like annual property taxes and insurance. Each month, you’ll pay a little into your escrow account as part of your mortgage payment. It’s sort of like a monthly piggy bank for those annual obligations. Then, when the annual due date for taxes and insurance come around, your mortgage servicer makes the payment for you from the money you placed in escrow the previous year.
Escrow accounts simplify the requirements of being a homeowner and provide you with a lot of conveniences.
What is a Mortgage Escrow Account Used for?
Purchasing a home is not like buying a product on Amazon or eBay. The sheer size of the transaction means there’s a lot a stake. As a buyer, you want the peace of knowing you can make good on what’s required of you, and the lender needs assurances that all required payments can be made. In addition to the work your mortgage adviser will do to make sure you’re able to make monthly payments on principaland interest, they’ll also help you make a plan for paying annual taxes and insurance.
Do I Need a Mortgage Escrow Account?
Probably – but it’s not always required. In some cases, like with an FHA loan, escrow accounts are required. In other situations, it’s the discretion of the homeowner about whether to have an escrow account and for how long. Requirements for escrow accounts and their required terms vary by mortgage program, and you should speak with your adviser about what’s right for you.
Most people opt to have an escrow account because it simplifies budgeting for your annual tax and insurance payments. Plus, you don’t need to remember to make an additional payment. This keeps you from lapsing on property taxes or risking uninsured damage to your home. Both of these scenarios can create very messy situations.
Especially for first-time homebuyers who already have a lot to navigate, the answer to the question of “Do I need a mortgage escrow account?” is probably a resounding “Yes!”
Have More Homebuying Questions?
Escrow accounts are just one aspect of the sometimes-confusing mortgage process. Don’t go it alone. Get your questions answered by a local mortgage adviser near you. They’ll help through the entire process from initial consultation to close. Let us show you what the mortgage process should be like!