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Escrow Accounts

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Escrow Accounts - What are they, how do they work, and do I want one?

An escrow account is a piggy bank held by your lender to pay for property tax and insurance bills when they come due.  A portion of each month's payment is placed in that piggy bank to insure you'll have the right amount on hand when that tax or insurance bill comes knocking.  At the end of each year, your lender will conduct an Escrow Analysis to verify they are on track and not collecting too much or too little as those bills can change from time to time. 

In some cases, borrowers may prefer to manage it themselves and opt to 'Waive Escrows.'  To do so, there is typicaly a loan to value requirement of 80% and a small at-closing fee may be assessed.  Other folks simply prefer having one or two less bills to worry about and appreciate that the costs are spread out over the course of the year. 

Of course, if you sell your home or pay-off your mortgage via a refinance, the balance of your escrow account will be refunded in full within 30 days.  If you are setting up a new escrow account as part of a purchase or refi, we will calculate the amount needed to essentially 'load up' that piggy bank based on the closing date and how soon those bills will be coming do.  Escrows may also be referred to as Pre-paids and, while part of the closing process, are technically not closing costs as they are funds set aside for your benefit.

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