With each monthly payment you make on your contract, there is principal and interest….and property taxes…and usually homeowners insurance. The collection of property taxes and homeowners insurance is known as Escrowing.
WHAT IS ESCROW FUNDS USED FOR?
The funds accumulated at closing and monthly are used to pay for future expenses on the property (for property taxes and homeowners insurance)
HOW IS YOUR ESCROW CALCULATED?
We start by adding your annual property taxes and annual homeowners insurance premium and divide by 12 monthly payments. Since these amounts are future payments (and usually unknown amounts), at closing we collect 2 months of known (or estimated property taxes) and homewners insurance. On new construction properties, we often collect more each month so when full property taxes come due in the next year or two, the monthly impact is not too great.
WHEN DOES ESCROW CHANGE?
Each March, when property tax statements become available, we review the expected escrow disbursements through the remaining year AND projected following year. We may adjust the amount collected for escrow based on the projections (usually effective in May or June). If annual insurance renewal premiums come in drastically different than projected, that may cause a change in the escrow to be collected as well.
IS IT POSSIBLE TO HAVE NO CHANGE IN THE ESCROW PAYMENT?
If the projected escrow disbursements are inline with actual taxes and insurance, there may be no change to the escrow portion of your payment. There is also the option of a ‘one time’ payment into your escrow funds vs. having a monthly increase to your overall payment.
WHAT HAPPENS TO THE FUNDS IN ESCROW WHEN I SATISFY THE CONTRACT FOR DEED?
The escrow funds are included in your contract payoff calculation (if negative, the amount needed to bring current is included).
Please contact us at 952-417-9000 with ANY questions
