I recently got a letter from my mortgage company that states my mortgage is going to go up because my escrow account was short this year. A new mortgage company has taken over our mortgage and now its going up $700.00 bucks a month. They are requiring us to have double in our escrow account which is the reason for the increase. My taxes are about 7,000/year and they are requiring us to pay 1300.00 a month into escrow. I spoke to a few people who said I could drop this escrow account and pay my taxes myself and it would be cheaper. Is this true? Thanks in advance.
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I don't know about cheaper, but if you have enough equity in your home you can request to remove the escrow account. I have never had it on property taxes, but have for homeowners insurance. -
Running your own escrow account takes a level of discipline that many people do not have. I have done it for years.
There is generally a cost associated with dropping your escrow account. I don't remember how much, I just thought it was worth it.
After that is done, divide your taxes and insurance by 12 months and I would generally recommend adding a little buffer. That money goes into a savings account every single month. It cannot be touched, decreased, skipped, or "I'm a little short this month, I'll make it up later..."
You earn interest on your money. Not who ever is holding your escrow. You pay your insurance in full when it comes due. You pay your taxes in December.
You do have to have at least 20% equity and no private mortgage insurance.Comment
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Your payoff will probably need to be less than 80% of the original loan amount before they will consider letting you out of the escrow account.Comment
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We built our home back in 2015. My wife spoke to mortgage company and they said as long as we had our loan for a year and hadn't been late on payments we could send a letter requesting to drop escrow account. She did not say anything about having PMI and 20% Equity.Originally posted by twobittxn View PostComment
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Typically your loan to value will need to be less than 80% to waive escrow. The reason for escrow is it assures the mortgage servicer that you will have enough funds to pay your taxes. The servicer is holding your monthly escrow payments in trust and will pay your taxes on your behalf when due. Bottom line, the average homeowner is not disciplined enough to budget for property taxes that are due in full by January 31st.
As for cheaper, not really. Your property taxes and insurance are what they are. With that said, the servicer is estimating what your taxes will be and using that to decide how much you should escrow monthly. Obviously, they can be off on the high or low side. If it's on the high side, you will get that money back either by escrowing less monthly in the future or perhaps a refund.
The benefits of not escrowing are you have control over your money and can use it or invest it however you want throughout the year. The downside is, that $7K check you write at the end of the year is painful.Comment
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Escrowing does not cost more...same amount of moneyComment
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negative someone has misinformed you.
mortgage don't make money on taxes the question is when they withhold too much or too little. there is a distinct possibility they are withholding too much (usually you get a credit)
taxes are never cheaper regardless of who pays for them and candidly part of the housing disaster was the offering of 80/20 loans which allowed people to get too much house by deferring their taxes then didn't have it when the taxes were due.
I'd proceed with caution, it's better to work with the mortgage company on taking the right amount unless you have extreme discipline and will ensure you have the funds.
a more technical answer says you can waive escrow if the loan is no more then 80% the home value . . . you aren't waiving any taxes just the escrow.Comment
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If they are requiring double, the price might drop once you hit double what your tax + insurance per year is.Comment
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Thanks for the replies Gents! I appreciate all the info.Comment
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I used to fight my lender every year on this. Figure out what your escrow payment needs to be every month then call them up tell them that's what you want it set at. They can't argue the facts.Comment
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You said the key word. You built your home in 2015 appraisal district didn't assess a value on the structure until 2016 your escrow payment for all of last year was most likely based off taxes on the land only. Lender should have prepared you for thatComment
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One of the best things I did as a home buyer was to take over my escrow and handle it myself.
I remember I had to have over x amount of equity in the home (80 or 50 %) and I paid a one time fee of somewhere around $250.00. This was with Wells Fargo. They paid out my homeowners insurance twice in one year, twice- which creates a problem YOU have to solve for them.
The second time I said enough was enough and took it over.
Being disciplined to pay it was a non issue for me.
I added up the total needs for the year, divided by 26 and set that amount aside every paycheck in an account accessible on my Credit unions banking homepage.
Then payout taxes at the end of the year and insurance when it comes along.Comment
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I had something similar happen and what happened to me was that the first mortgage company paid the taxes and insurance and in that month was when it sold our mortgage to the new company and they ALSO paid the taxes and insurance, hence the escrow doubled. Check and make sure this did not happen.Originally posted by JMB View PostComment
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