Although escrow refunds are relatively rare, these welcomed transactions do exist! Plus, when you could expect to receive one. An escrow refund occurs when your escrow account contains excess funds and you receive a check in the amount of any remaining balances. However, if there is surplus in the escrow account after you finish paying off the loan, you will be entitled to an escrow refund regardless of the amount. A refund of any kind sounds great.
But in order to fully understand what an escrow refund is, it is critical to understand what an escrow account is. As a homeowner, there are two ways that escrow accounts are generally used in real estate. First, an escrow account can be used to hold your good faith deposit in the closing process.
In this case, you make a significant deposit to show your seriousness in the property. A third party holds the deposit in a specific escrow account. The second way that an escrow accounts is used is as a secure place to hold funds intended to cover insurance and taxes.
Essentially, an escrow account is an easy way to manage your property taxes and insurance premiums. As a mortgage loan holder, you likely make monthly mortgage payments that include funds for your loan principal, interest, property taxes , and insurance.
As you make these monthly payments, the loan servicer will set aside a portion of your mortgage payment and hold it in your account to cover taxes and insurance payments associated with the property. For example, your homeowners insurance will be paid for out of the escrow account.
Escrow refunds can occur in a variety of situations. Although the details will vary based on your particular situation, here are a few instances in which you might be eligible for an escrow refund. If you are eligible for an escrow refund check, the loan servicer will most likely issue a check after its required annual escrow account analysis. If you don't make these payments on time, you could lose your home through tax foreclosure or have your policy dropped.
Your lender doesn't want either of these scenarios to happen because it has an interest in your property until the mortgage loan is paid in full. To ensure that taxes and insurance are always paid on time, many lenders require their borrowers to maintain an escrow account.
Each month, you pay the lender, who pays the bills directly on your behalf. The lender determines the monthly payment by adding up the total amount due for taxes and insurance for the year. It obtains this information based on data from the tax collector and insurance companies or past data. The grand total is divided by 12 to reach the monthly payment amount. However, if you buy with 20 percent down or more, you may still want to create an escrow fund.
Related: Why do lenders want so much escrow money at closing? You want your escrow account to cover all required tax and insurance costs. If your insurance policy is canceled, not renewed or does not provide sufficient coverage, the lender can buy a replacement policy and force you to pay the premium.
The cost of a force-placed policy can be several times what you would pay with a traditional insurer. Avoid force-placed insurance and always be certain you have proper coverage. Once a year, the mortgage servicer must provide an analysis of the account. It will show how much has been in it each month, as well as the dates when money has been dispersed.
The statement will also adjust your required monthly payment up or down. If there is too little money in the account, the lender will typically give you a choice. You can pay any shortage in a lump sum or in 12 equal monthly payments. The lender adds the extra charge to the monthly mortgage payment. The best way to determine what you owe and how much you need to put aside each month is by dividing your annual property taxes and insurance premiums by Add the monthly cost of taxes and premiums together, and that is your monthly budget number for these purposes.
Handle these matters as soon as possible. In a worst-case scenario, failure to pay property taxes can end up with a house going to auction at auction. At the least, neglecting to pay property taxes promptly means financial penalties and a drop in your credit score. During the escrow period, our title department begins researching and examining all historical records pertaining to the subject property.
Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review. Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. When choosing an escrow company there can be many important factors to evaluate.
Fees, location, staff and even recommendations from friends and colleagues are all things to consider. Call us today with any questions or concerns.
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