Payoff escrow shortage? Or keep it rolled into mortgage payments?

short+sassy · February 2016

End of January mean mortgage annual escrow accounting statements roll out. And I got mine over the weekend.

Two years ago, I increased my insurance a good bit because I was scarily way underinsured. As expected, my escrow accounting statement last year raised my mortgage payment $100 PLUS an additional $75 for escrow shortage. Major bummer, but expected.

However, this year, I was expecting that "$75 escrow shortage" part to fall off. Then with slight increases to the insurance, I'd end up with a mortgage payment $50 less than it has been this year.

Nope. My payment only decreased by about $20 because I STILL have an escrow shortage of $564.

I'm inclined to just pay off the shortage and keep my mortgage payments $50/month cheaper, like I was expecting. Psychologically, I feel better about taking the big hit now and being annoyed about it once, than being annoyed by it every month for the rest of the year. Practically, I will be buying more real estate this year and having my mortgage reduced by $50 will definitely be a positive boost to my debt to income ratio.

Does paying it off make the most sense MM-wise? Is there any reason I shouldn't pay it off that I might not be thinking of? The mortgage payment will be comfortable for me either way. I can also cash flow the $564 without having to dip into my e-fund or have trouble paying my bills.

labro · February 2016

Doesn't the escrow shortage come from you not paying enough in over the course of the year? So it seems to make sense it would remain year over year because you'll still need to pay in a larger amount than you were before you changed your insurance. Right? Maybe I'm misunderstanding.

Our property tax increased somewhat significantly this year so we also had a shortage. Not a major one, but I feel like the bank wants a minimum account balance even after taxes and insurance and so the additional amount per month covers the increased taxes, but also helps to keep us at or above the minimum escrow amount after all the payments come out.

From the persepctive that you want to improve your debt to income ratio, I think I'd want my mortgage to be as low as possible....so it seems to make more sense to me in this case to pay it off in a lump sump at the beginning of the year.

cbee817 · February 2016

We end up "short" every year too- our escrow account tends to go up about $15/month when it's evaluated every June. The minimum we're supposed to have in there is like $800 which to me seems like too much especially given the dates our bills are due (February for county, June for City/Village, September for school, November for insurance) and we have almost $400/month go to the escrow account.

I just roll with the higher mortgage payment instead of paying the full amount upfront. Our yearly budget reflects the average % increase since we have had this house so we're ready for the change. I have a love/hate relationship with our escrow account- love not having to set aside the $ for taxes and insurance, hate having to keep so much extra in there and still have it go up every year.

short+sassy · February 2016

labro said:

Doesn't the escrow shortage come from you not paying enough in over the course of the year? So it seems to make sense it would remain year over year because you'll still need to pay in a larger amount than you were before you changed your insurance. Right? Maybe I'm misunderstanding.

Our property tax increased somewhat significantly this year so we also had a shortage. Not a major one, but I feel like the bank wants a minimum account balance even after taxes and insurance and so the additional amount per month covers the increased taxes, but also helps to keep us at or above the minimum escrow amount after all the payments come out.

From the persepctive that you want to improve your debt to income ratio, I think I'd want my mortgage to be as low as possible....so it seems to make more sense to me in this case to pay it off in a lump sump at the beginning of the year.

You are misunderstanding a bit. The year after I upped my insurance, my payment went up $100/month just from that. So my payment will always be $100 more than before, because my yearly insurance is more.

But, on top of the $100/month more, there had also been an additional $75/month to cover the escrow shortage for that year. Its that $75/month portion I was expecting to mostly drop off because the escrow shortage part should have been paid and caught up over the course of last year.

short+sassy · February 2016

cbee817 said:

We end up "short" every year too- our escrow account tends to go up about $15/month when it's evaluated every June. The minimum we're supposed to have in there is like $800 which to me seems like too much especially given the dates our bills are due (February for county, June for City/Village, September for school, November for insurance) and we have almost $400/month go to the escrow account.
I just roll with the higher mortgage payment instead of paying the full amount upfront. Our yearly budget reflects the average % increase since we have had this house so we're ready for the change. I have a love/hate relationship with our escrow account- love not having to set aside the $ for taxes and insurance, hate having to keep so much extra in there and still have it go up every year.

It's funny because, for the non owner-occupied duplex I just bought, that loan is NOT escrowed. Escrows are typically only done for personal residencies. So I'm responsible for paying the insurances and property taxes myself.

I didn't think I would prefer it that way, but I really do! It's so much better. For closing, the only thing I had to pay upfront for an entire year was my flood insurance. Though I paid that directly to the NFPP (or whatever their initials are).

My property insurance I pay by the month, so I only had to pay for the first month for closing. I mean, of course I pay it every month, but I didn't have to pay a year and then some at closing. No property taxes at closing either, other than what I had to "pay back" to the seller (we pay property taxes ahead where I live). I just pay the tax bill directly when I receive it...and just did a couple weeks ago (sigh).

brij2006 · February 2016

Oh man, I would pull all of the escrow accounts out and just do the property taxes and insurance myself. You're disciplined enough to do it and then you wouldn't need a minimum balance just sitting there for no reason or get hit with extra charges.

However, if you front load it like you do right now, I would factor in a 10-15% increase when doing your sinking fund to pay for the next years' premium and taxes. It almost always goes up. We factor another 10% just in case it increases (it usually does but not that much). Anything that's left over we just put toward something else that month.

short+sassy · February 2016

brij2006 said:

Oh man, I would pull all of the escrow accounts out and just do the property taxes and insurance myself. You're disciplined enough to do it and then you wouldn't need a minimum balance just sitting there for no reason or get hit with extra charges.

However, if you front load it like you do right now, I would factor in a 10-15% increase when doing your sinking fund to pay for the next years' premium and taxes. It almost always goes up. We factor another 10% just in case it increases (it usually does but not that much). Anything that's left over we just put toward something else that month.

Great minds think alike! As I was typing my post I was thinking, "Hmm...maybe I should talk to the bank with my personal home loan about stopping the escrow and changing it to my responsibility."

The bolded is a good point that I need to start keeping in mind. I expect insurances to go up a bit each year, but don't really think about it. I also know my property taxes for my personal home will be going up a lot in 2017, because my area is being reassessed this year. I expect it to double. Need to plan for that also.

brij2006 · February 2016

short+sassy said:

brij2006 said:

Oh man, I would pull all of the escrow accounts out and just do the property taxes and insurance myself. You're disciplined enough to do it and then you wouldn't need a minimum balance just sitting there for no reason or get hit with extra charges.

However, if you front load it like you do right now, I would factor in a 10-15% increase when doing your sinking fund to pay for the next years' premium and taxes. It almost always goes up. We factor another 10% just in case it increases (it usually does but not that much). Anything that's left over we just put toward something else that month.

Great minds think alike! As I was typing my post I was thinking, "Hmm...maybe I should talk to the bank with my personal home loan about stopping the escrow and changing it to my responsibility."
The bolded is a good point that I need to start keeping in mind. I expect insurances to go up a bit each year, but don't really think about it. I also know my property taxes for my personal home will be going up a lot in 2017, because my area is being reassessed this year. I expect it to double. Need to plan for that also.

There's absolutely nothing wrong with escrow accounts, but I think they're for certain types of people (this is just my personal opinion). There are people who don't budget and don't think forward to when annual bills are due. So an escrow is a good idea. However, I've seen where people will have hundreds or thousands of dollars just sitting in their escrow account because the bank doesn't have the accounting together correctly and there's extra money sitting in it and the homeowner can't get it out (Chase and Wells Fargo are notorious for this). Or they charge a large fee for this service. Which it is a service and takes someone to manage that account for you. Some banks also require there to be a minimum amount of money in the escrow at all times. Why? It doesn't make any sense.

So many people underestimate how easy it is to just do this themselves. Take the annual amount for taxes and insurance, divide it by 12, and pay yourself that payment plus 10% into your own savings account every month. Just like it's a payment you make to the bank every month. Heck, many banks you can set up an automated withdraw for it to be transferred from 1 account to the other on the same day every month. Schedule it for the same day as your mortgage payment and there you go.

Even with your own homes' taxes likely doubling next year, you will run into this issue again. They will increase the escrow payment plus charge you to catch up for the lack of funds from the prior year. If you have the discipline to avoid this, I would.

short+sassy · February 2016

@brij2006, I've found it especially easy to think that way about the new duplex. Because I analyzed the heck out of it before I put in an offer, including all the monthly costs plus average "set asides" for vacancies/maintenance.

To me, I don't think, "Ooohh...soon I'll be renting out that baby for $2,000/month." I think of it as, "Ooohh...soon I'll be renting that baby out for a $900 cash flow/month." In my mind, the money I need to set aside for monthly/annual/future expenses is already subtracted out and "not available".

Otherwise, I'm going to get myself in trouble and think I have way more money than I really do! Not really, lol, but it makes it easier to pay those big annual bills and/or fix a leaky roof when that money is already just hanging out in a "hands off" account.

Yes! I definitely want to get the tax bill out of escrow or it will be another double edged sword next year of "your mortgage is going up X" and...oh look, you're short on escrow again...going up another X.

dragonstarjk · February 2016

short+sassy said:

labro said:

Doesn't the escrow shortage come from you not paying enough in over the course of the year? So it seems to make sense it would remain year over year because you'll still need to pay in a larger amount than you were before you changed your insurance. Right? Maybe I'm misunderstanding.

Our property tax increased somewhat significantly this year so we also had a shortage. Not a major one, but I feel like the bank wants a minimum account balance even after taxes and insurance and so the additional amount per month covers the increased taxes, but also helps to keep us at or above the minimum escrow amount after all the payments come out.

From the persepctive that you want to improve your debt to income ratio, I think I'd want my mortgage to be as low as possible....so it seems to make more sense to me in this case to pay it off in a lump sump at the beginning of the year.

You are misunderstanding a bit. The year after I upped my insurance, my payment went up $100/month just from that. So my payment will always be $100 more than before, because my yearly insurance is more.
But, on top of the $100/month more, there had also been an additional $75/month to cover the escrow shortage for that year. Its that $75/month portion I was expecting to mostly drop off because the escrow shortage part should have been paid and caught up over the course of last year.

I guess I'm thinking the $75/month portion was to catch up the part that was behind from the year before, but not enough to catch up from last year, so that's why there is still a shortage. It's getting behind every year and even w/ the additional $75, it's not catching up. This is probably because the escrow amount is going up every year.

I like having the escrow account because we don't have to think about all of those payments, but our bank doesn't require a huge amount to be in there. It's usually just enough to cover the payments throughout the year, or be a little short/over. Ours was short this year and they gave us the option of paying for it up front and leaving our mortgage payments the same, or allowing our mortgage payment to increase. We went with the $15/month increase..

If you don't mind budgeting for the taxes, insurance, etc. separately, then I would just go ahead and pay it so your D/I ratio is lower (although that $75 isn't going to make a huge difference). But that doesn't mean it's not going to get behind again throughout the year, unless you just stop the escrow account completely and pay it yourself from here on out.

AprilZ81 · February 2016

I've owned a house since 2003. I've NEVER had the same mortgage payment two years in a row. They never seem to have the escrow amount figured correctly and it is mainly due to the "required minimum balance" that the Feds (I think it is them) require. So not only am I paying monthly for insurance and taxes but I have to have a cushion there as well.

I never thought about pulling it out and doing it myself. I'm disciplined enough to do it and it might save us some cash each month since we won't have to have a minimum balance... I'll have to check with our bank to see if this is an option.

kmurphy2131 · February 2016

We are currently looking for a house, buying our first house. So I didn't really know what escrow was, and after I read about it all I got SO annoyed. I guess it's for people who can't figure out how to pay their own bills...but I have basically been doing my own "escrow" to pay our insurance every year (car & renters) and would much rather do it myself than have to have someone else do it.

To the point of the post - I would pay it upfront, it can only help when looking to buy something new.

LillibetteV · February 2016

Some banks make it a real pain to avoid escrow or straight up won't write your loan without it - they don't want you to screw it up and end up with a huge tax lien on a property they also have a financial interest in. My bank made it a hassle to skip the escrow (and the rate would have gone up) so we just went with it, thankfully they don't keep a huge buffer in there and it does earn a skimpy amount of interest. I'd be much happier doing it myself but not taking the lower interest rate would have kind of defeated the purpose of refinancing!

blondie42107 · February 2016

Our mortgage is through our local bank. We've never had an issue with our escrow (and we know how to pay our bills). This year our monthly escrow payment increased by $8. Our property taxes went up some but nothing crazy. We've had no change in the cost of our home owners insurance. In 8 years of ownership, we've only had a mortgage payment increase twice. Some years we've received an overage check.

Xstatic3333 · February 2016

Reading through this thread has made me realize our credit union is really strange, probably in a good way. First (unrelated to our CU being awesome), I always assumed escrow was required-I didn't know that just paying your own property tax was an option. Second, our CU never asked us to escrow our homeowners' insurance. We just have it auto-drafted directly from our insurer every month. Third, last year we ended up with an escrow overage of about $250, and the CU cut us a check for that amount. Could they really have just held onto it if they wanted to? I assumed we got that checked because they were legally required to give us back the overage. OP, I think your plan sounds solid. Your thread just made me realize my mortgage may be really unusual...

abrewer5 · February 2016

kmurphy2131 said:

We are currently looking for a house, buying our first house. So I didn't really know what escrow was, and after I read about it all I got SO annoyed. I guess it's for people who can't figure out how to pay their own bills...but I have basically been doing my own "escrow" to pay our insurance every year (car & renters) and would much rather do it myself than have to have someone else do it.

To the point of the post - I would pay it upfront, it can only help when looking to buy something new.

I completely disagree with the bolded... I definitely know how to pay my bills and I have an escrow account attached to my mortgage. Usually, as others have mentioned, the banks push it on you when writing your loans, and typically won't let you know it's an option not to have one at all. It's the 'norm' to have an escrow account attached to your mortgage, at least in my area, so for many they just go with it.

ETA: My escrow shot up $70 a month before we even made our first mortgage payment after signing all of our loan docs. Nothing changed with our property taxes/insurance in that time, so that was really frustrating. Since then our escrow hasn't changed much, only by a few dollars here and there. We almost always have an overage.

jtmh2012 · February 2016

We have our mortgage through Chase. While they have their faults, I will say they've been better than other places we've used previously. From what I understand of escrows in terms of limits, there are federal/state requirements on minimum/maximum balances. So they're required to refund you if there's too much, and have to make up the shortage when there's too little.

The part that annoys me is that in Virginia, property taxes are decided on their fiscal year which starts over in July, but the escrow gets analyzed in February or so. So what ends up happening is there are one or two payments where the tax bill is "more than expected" and then I get the "oh my, we have a shortage" letter. Like we couldn't have adjusted this when the first tax bill that was different showed up? I believe we can request a manual analysis, but I've never done it.

I've also asked about not having the escrow, but there's a charge for it which if I remember right with Chase is 1% of the loan value. Given I'll never make that back making the insurance payments on my CC, I just let it go. One less thing for me to worry about. I could manage it myself, but just not worth it.

hoffse · February 2016

abrewer5 said:

kmurphy2131 said:

We are currently looking for a house, buying our first house. So I didn't really know what escrow was, and after I read about it all I got SO annoyed. I guess it's for people who can't figure out how to pay their own bills...but I have basically been doing my own "escrow" to pay our insurance every year (car & renters) and would much rather do it myself than have to have someone else do it.

To the point of the post - I would pay it upfront, it can only help when looking to buy something new.

I completely disagree with the bolded... I definitely know how to pay my bills and I have an escrow account attached to my mortgage. Usually, as others have mentioned, the banks push it on you when writing your loans, and typically won't let you know it's an option not to have one at all. It's the 'norm' to have an escrow account attached to your mortgage, at least in my area, so for many they just go with it.
ETA: My escrow shot up $70 a month before we even made our first mortgage payment after signing all of our loan docs. Nothing changed with our property taxes/insurance in that time, so that was really frustrating. Since then our escrow hasn't changed much, only by a few dollars here and there. We almost always have an overage.

Yes, agreed. It has nothing to do with not being able to budget/pay your bills - there are federal and state laws that set limits where banks have the option of imposing the escrow on a home owner to minimize risk. If your miss your tax payment and a lien gets attached to your property, the state usually has priority over the bank if the property goes to a tax sale. It's a huge added risk for banks, and that's why they do escrows. It protects their investment.

Many banks will let you get rid of escrows once your LTV gets low enough, but quite often they require it to go very low before they will let you remove it, and many people sell the house by then. Or else they will let you remove the escrow earlier, but they charge a higher interest rate to offset their risk by letting you do it yourself.

Point is, escrows are not always optional. It depends on where you live, what the equity is in your house, and what your lender is willing to do.

The cushion that some lenders requires is annoying, but ultimately it's your money that you will get back at some point, and it's far cheaper than taking an interest rate hike if that's the other option they give you.

brij2006 · February 2016

Many banks (especially larger ones) prefer to have the escrow account so they know for sure that the insurance and property taxes are being paid. So it makes sense that some of them charge a higher rate for not doing an escrow.

Personally, I would choose to get my mortgage from a different bank if they were going to do that. It's pretty much screaming that they don't trust me to be responsible. Even though that may be their practice, it's not something I would be comfortable with.

LillibetteV · February 2016

brij2006 said:

Many banks (especially larger ones) prefer to have the escrow account so they know for sure that the insurance and property taxes are being paid. So it makes sense that some of them charge a higher rate for not doing an escrow.
Personally, I would choose to get my mortgage from a different bank if they were going to do that. It's pretty much screaming that they don't trust me to be responsible. Even though that may be their practice, it's not something I would be comfortable with.

I mean....what if it they offered you an amazing interest rate and super low closing costs? My refinance required it to get the best rate available and over the course of the loan (including the closing costs) it saved me $70k in interest. The higher rate would have saved about $60k. I don't really care what an underwriter thinks of me personally if I'm saving $10k. Since I would need that money regularly to pay the bill myself it's not as if I'm passing up on potential investment returns.

brij2006 · February 2016

LillibetteV said:

brij2006 said:

Many banks (especially larger ones) prefer to have the escrow account so they know for sure that the insurance and property taxes are being paid. So it makes sense that some of them charge a higher rate for not doing an escrow.
Personally, I would choose to get my mortgage from a different bank if they were going to do that. It's pretty much screaming that they don't trust me to be responsible. Even though that may be their practice, it's not something I would be comfortable with.

I mean....what if it they offered you an amazing interest rate and super low closing costs? My refinance required it to get the best rate available and over the course of the loan (including the closing costs) it saved me $70k in interest. The higher rate would have saved about $60k. I don't really care what an underwriter thinks of me personally if I'm saving $10k. Since I would need that money regularly to pay the bill myself it's not as if I'm passing up on potential investment returns.

This is just me being me and liking to have control over it. I review our homeowners insurance constantly and am always looking to see if we can save some money by making changes or moving companies. It can create a mess through an escrow account if someone switches companies mid-term.

I would honestly probably take the rate that was quoted and go elsewhere with it and see if the bank can match it. Many can. Our first mortgage was through a credit union we had nothing to do with and no accounts at. Wells Fargo gave us a 5.5% rate (in 2008) with low closing costs, so we called around to at least 10 other banks to see if they could match it. We really didn't want to go with Wells Fargo because of the housing crash and how that was becoming a mess to deal with them. The CU's rates were 7-10% at that time.

LillibetteV · February 2016

I used to shop my insurance every year too and have just learned to accept that I already have the best rate. Every time I get a quote that's "lower" I look at it more closely and they screwed up the coverages amount I ask for! Yes, I really do want a minimum of $500k in personal liability....I work in litigation and I've seen first hand the lawyer that cheap insurance buys you if you're ever sued...no thanks I'll pay the extra $20/year for peace of mind!

brij2006 · February 2016

LillibetteV said:

I used to shop my insurance every year too and have just learned to accept that I already have the best rate. Every time I get a quote that's "lower" I look at it more closely and they screwed up the coverages amount I ask for! Yes, I really do want a minimum of $500k in personal liability....I work in litigation and I've seen first hand the lawyer that cheap insurance buys you if you're ever sued...no thanks I'll pay the extra $20/year for peace of mind!

As an insurance agent, I commend you on this. So many people don't understand how important the liability portion of the policy is.

short+sassy · February 2016

Like some of you have mentioned, I suspect the bank for my personal home loan may not allow me to get rid of the escrows and/or it will be a big song and dance to do it. I have a good relationship with my loan officer there so, we'll see. I'll update this thread after I talk to her.

In the meantime, I'm glad to see no one else mentioned any downfalls for just paying off my escrow shortage. I'm going to take care of that with my next paycheck.

short+sassy · February 2016

brij2006 said:

LillibetteV said:

brij2006 said:

Many banks (especially larger ones) prefer to have the escrow account so they know for sure that the insurance and property taxes are being paid. So it makes sense that some of them charge a higher rate for not doing an escrow.
Personally, I would choose to get my mortgage from a different bank if they were going to do that. It's pretty much screaming that they don't trust me to be responsible. Even though that may be their practice, it's not something I would be comfortable with.

I mean....what if it they offered you an amazing interest rate and super low closing costs? My refinance required it to get the best rate available and over the course of the loan (including the closing costs) it saved me $70k in interest. The higher rate would have saved about $60k. I don't really care what an underwriter thinks of me personally if I'm saving $10k. Since I would need that money regularly to pay the bill myself it's not as if I'm passing up on potential investment returns.

This is just me being me and liking to have control over it. I review our homeowners insurance constantly and am always looking to see if we can save some money by making changes or moving companies. It can create a mess through an escrow account if someone switches companies mid-term.
I would honestly probably take the rate that was quoted and go elsewhere with it and see if the bank can match it. Many can. Our first mortgage was through a credit union we had nothing to do with and no accounts at. Wells Fargo gave us a 5.5% rate (in 2008) with low closing costs, so we called around to at least 10 other banks to see if they could match it. We really didn't want to go with Wells Fargo because of the housing crash and how that was becoming a mess to deal with them. The CU's rates were 7-10% at that time.

Haha, when I changed my property insurance two years ago, I changed insurance companies and changed the type/amount of coverage I had. Except I did it just a couple months after my old policy had renewed.

I knew it would be an extra hassle, and it was, but I didn't want to wait another 10 months. I just wish I'd been more on the ball a few months earlier.

What basically happened was I had to pay for the new policy, up front and out of my own pocket. Then send proof of the new insurance to my bank and the old insurance. Then the old insurance sent me a refund check for the prorated amount from the date of cancellation. Of course, that check took about 5 weeks before I got it.

hoffse · February 2016

LillibetteV said:

I used to shop my insurance every year too and have just learned to accept that I already have the best rate. Every time I get a quote that's "lower" I look at it more closely and they screwed up the coverages amount I ask for! Yes, I really do want a minimum of $500k in personal liability....I work in litigation and I've seen first hand the lawyer that cheap insurance buys you if you're ever sued...no thanks I'll pay the extra $20/year for peace of mind!

Truth. It's terrifying, isn't it?

LillibetteV · February 2016

hoffse said:

LillibetteV said:

I used to shop my insurance every year too and have just learned to accept that I already have the best rate. Every time I get a quote that's "lower" I look at it more closely and they screwed up the coverages amount I ask for! Yes, I really do want a minimum of $500k in personal liability....I work in litigation and I've seen first hand the lawyer that cheap insurance buys you if you're ever sued...no thanks I'll pay the extra $20/year for peace of mind!

Truth. It's terrifying, isn't it?

Most of them are competent and perfectly nice, but they do not defend as vigorously because they know their bill isn't getting paid because it's a cheap-o policy. I had a case once where one of the defendants' lawyers (with a low policy) actually asked us, the plaintiff, for copies of all the deposition transcripts because his insurer wouldn't pay for them. He wasn't even suggesting a cost share agreement - he wanted them for free! (1) We're adversaries so no and (2) that's so sketchy and unfair to the court reporters who make their living selling their work.

hoffse · February 2016

LillibetteV said:

hoffse said:

LillibetteV said:

I used to shop my insurance every year too and have just learned to accept that I already have the best rate. Every time I get a quote that's "lower" I look at it more closely and they screwed up the coverages amount I ask for! Yes, I really do want a minimum of $500k in personal liability....I work in litigation and I've seen first hand the lawyer that cheap insurance buys you if you're ever sued...no thanks I'll pay the extra $20/year for peace of mind!

Truth. It's terrifying, isn't it?

Most of them are competent and perfectly nice, but they do not defend as vigorously because they know their bill isn't getting paid because it's a cheap-o policy. I had a case once where one of the defendants' lawyers (with a low policy) actually asked us, the plaintiff, for copies of all the deposition transcripts because his insurer wouldn't pay for them. He wasn't even suggesting a cost share agreement - he wanted them for free! (1) We're adversaries so no and (2) that's so sketchy and unfair to the court reporters who make their living selling their work.

Yeah, true... though sometimes I wonder about the competence bit. Some states really need to lower their bar passage rates.

julieanne912 · February 2016

abrewer5 said:

kmurphy2131 said:

We are currently looking for a house, buying our first house. So I didn't really know what escrow was, and after I read about it all I got SO annoyed. I guess it's for people who can't figure out how to pay their own bills...but I have basically been doing my own "escrow" to pay our insurance every year (car & renters) and would much rather do it myself than have to have someone else do it.

To the point of the post - I would pay it upfront, it can only help when looking to buy something new.

I completely disagree with the bolded... I definitely know how to pay my bills and I have an escrow account attached to my mortgage. Usually, as others have mentioned, the banks push it on you when writing your loans, and typically won't let you know it's an option not to have one at all. It's the 'norm' to have an escrow account attached to your mortgage, at least in my area, so for many they just go with it.
ETA: My escrow shot up $70 a month before we even made our first mortgage payment after signing all of our loan docs. Nothing changed with our property taxes/insurance in that time, so that was really frustrating. Since then our escrow hasn't changed much, only by a few dollars here and there. We almost always have an overage.

Yeah pretty sure if you can't figure out how to pay your own bills, you probably can't get a mortgage to begin with.

I see 50+ loans a month (I work in title/escrow). I would say 90% of them have escrow accounts. It's either because the lender requires it, or people just like the ease of it. Mostly the former though. The lender just wants to protect their own interest in the property... last thing they want is to deal with tax liens or have a borrower walk away from a damaged house because they didn't have/pay for homeowners insurance. It's just like how auto lenders will check to make sure you have car insurance, and if you don't, they'll go buy it for you (at a super high rate, but that's another story).

Escrow accounts are just another form of insurance for the lender... and they're there because of the very small percentage of the borrowing population who can't handle it on their own.... just like how rates on other insurances can go up because of a very small population that screws it up for everyone else.

short+sassy · February 2016

julieanne912 said:

Yeah pretty sure if you can't figure out how to pay your own bills, you probably can't get a mortgage to begin with.

I see 50+ loans a month (I work in title/escrow). I would say 90% of them have escrow accounts. It's either because the lender requires it, or people just like the ease of it. Mostly the former though. The lender just wants to protect their own interest in the property... last thing they want is to deal with tax liens or have a borrower walk away from a damaged house because they didn't have/pay for homeowners insurance. It's just like how auto lenders will check to make sure you have car insurance, and if you don't, they'll go buy it for you (at a super high rate, but that's another story).

Escrow accounts are just another form of insurance for the lender... and they're there because of the very small percentage of the borrowing population who can't handle it on their own.... just like how rates on other insurances can go up because of a very small population that screws it up for everyone else.

I totally understand why banks might require escrows. And, until I bought a second property, I always assumed they were required.

What is even weirder to me is that it is just the opposite for real estate loans on non-owner occupied properties. I could not have had that loan escrowed, even if I had wanted to. They just don't do that for those types of loans. I'm not saying all banks operate that way, but mine does.

I also understand why many people would just prefer to have their escrows rolled into their payment. It is less to think about and easier to deal with. But, for me, I have a few extra pieces I'm working with where getting rid of my escrows would be very advantageous.

1) My required escrow is insanely high ($4300) because my insurances are insanely high due to living in the land of hurricanes and floods.

Ironically, the loan portion of my mortgage payment is less than the escrow portion. But part of that is a good reason. I bought my house cheap and put 20% down, so my loan is on the low side.

2) Getting rid of the escrows will shave almost $400 off my mortgage payment. Which will make me look like a "debt to income rock star" to banks. Since I will (hopefully) be acquiring 1-2 more real estate investment properties this year, that will be a real advantage to my loan applications.

jessica490 · February 2016

We were required to put our taxes into escrow because we put down less than 20%

Payoff escrow shortage? Or keep it rolled into mortgage payments?

Re: Payoff escrow shortage? Or keep it rolled into mortgage payments?

Choose Another Board

Search Boards