Charlotte Home Buyers Guide--What is an Escrow Account?
Charlotte Home Buyers Guide—What is an Escrow Account?
Are you getting a mortgage to purchase your Charlotte home?
If so, your loan officer may have referenced PITA when speaking with you about
your mortgage payment. PITA stands for principle, interest, taxes and
insurance. Taxes and insurance are the portion of the mortgage payment that go
into an escrow account with your lender.
What is the purpose of the escrow account?
Lenders collect payments for property taxes and hazard insurance every month
to ensure that the payments for these annual bills are made on time.
Does every loan require an escrow account?
It depends on the type of the loan. Government-insured loans, such as FHA
and VA loans, always require escrow accounts. If you get a conventional loan
with a 20% or higher down payment, you may not be required to maintain an escrow
account. The lender may charge you a small fee at closing if you opt out of an
escrow account.
How much money may the lender keep in my escrow account?
A federal law establishes guidelines for the amount of funds that the lender
may keep in your escrow account. It states that lenders may keep a reserve or
cushion of up to two months of the total estimated annual escrow disbursements.
This reserve is used by the lender to cover increases in the annual escrow
disbursement due to increased property taxes or hazard insurance premiums during
the year.
What if there is too much money or too little money in my escrow
account?
The lender will perform an escrow analysis each year. This is an annual
accounting of the amounts paid into the account and the payments disbursed from
it. Based on a projection of funds needed for the coming year, the lender will
determine where there is an overage or a shortfall in the account. If there is
an overage, that amount will be refunded to you. If there is a shortage, your
lender will give you options for making up the shortfall, such as paying it in
full or increasing your payment to make up the difference.
Want to know more about buying a Charlotte home? Visit
www.CarolinaSmallTownLiving.com.
Copyright 2012. Carol Fox. Allen Tate Realtors. *Charlotte Home
Buyers Guide—What is an Escrow Account?*