First-time homebuyers need experienced real estate agents to help them through the steps of buying a house, and one of the things a good agent will do is answer all the questions the homebuyer has. One question many first-time homebuyers have involves escrow. When you get a loan to buy a single-family home, your lender is likely to require an escrow account, and there are several things you should know about this.
An escrow account is a holding account
An escrow account is like a saving's account, but it does not pay interest. When you get a loan, you will probably be required to put a certain amount of money in this account every month, and you will not get to choose this amount. Your lender will tell you how much it is, and the lender will add this amount to your monthly mortgage payment. You must pay the full amount of these two things each month.
Over time, the escrow account will grow and will contain a lot of money in it. At some point, though, the lender will remove some of the money and use it to pay your homeowner's insurance premiums and your property taxes.
The purpose of an escrow account
Lenders require borrowers to keep homeowner's insurance on their homes and to pay their property taxes. Because of this, lenders want to make sure that borrowers do this by not really giving borrowers an option. When a lender requires a borrower to put money in an escrow account each month, the borrower is basically forced to save for these things and to pay them.
How it works
When you initially get your loan to buy a house, the lender will require that you put some money in the account. The lender will then calculate how much your taxes will be for the year and your homeowner's insurance and will divide this by 12 months to see how much you will need to put in your escrow account each month.
At the end of one year, the lender will review the escrow account and change the amount you pay into it each month if necessary. The review will be based on the current balance in the account, the payments made, and the upcoming payments due.
If you have questions about buying a house or getting a loan, you should talk to a real estate agency to learn more about the process.