Tuesday, June 22, 2010
6/22/2010 11:09:00 AM | Posted by
Arbor Mortgage
Raise your hand if you've ever received the dreaded "Escrow Analysis" from your mortgage lender? I see it, dozens, hundreds, no thousands of hands are raising right now.
It usually comes once a year and describes which bills, tax and insurance, were paid out of your escrow account and how much money was put into your escrow account each month. Inevitably, there wasn't enough money to cover those bills and keep a cushion, so now your mortgage company is {gasp} raising your payment!
How can they do that? How can they raise your mortgage payment if you have a fixed rate? Well, it's pretty simple actually. When you have an escrow account that collects and disburses your property tax and insurance bills, your mortgage company will collect the amount of your annual bills, plus a cushion in case those bills go up. The maximum cushion allowed by law is 2 months worth of tax and insurance payments and almost all mortgage companies collect the max. If the balance in your escrow account ever dips below that 2 month cushion, your mortgage company will raise your escrow portion of your payment to not only replenish the shortage, but to make sure that the shortage doesn't happen again next year.
How did the escrow account get shorted in the first place? Usually, an escrow account becomes short by rising property tax or insurance bills. It's very common for new home buyers to have their homes reassessed the year following their purchase and find themselves on the receiving end of an increased tax bill. Thus, an increase in mortgage payment. It's especially common with newly constructed homes, because many times, the initial tax bill is based on the land only, and not the new home. Once it's completed and assessed, the tax bill goes up.
What can you do to stop this? There truly isn't anything you can do to prevent an escrow shortage. What you can do, to minimize the damage to your finances, is pay close attention to anything the lender sends you about the account. When your lender informs you of an escrow shortage, they will generally give you the option to pay the shortage in full, instead of increasing your payment. If the shortage is small enough, that's a great option. If the shortage and subsequent higher payment is too much to handle, give your mortgage company a call, they may be willing to spread out the shortage over a longer period of time - 12-36 months - but you have to ask.
Finally, don't forget to review the escrow analysis fully. Mortgage companies, and even local governments make mistakes. Follow up with your local offices to be sure that the tax amounts are correct. If the home is your primary residence, check that you are paying the "homestead" rate, which is much lower than a property that isn't owner occupied. If the tax assessment seems too high, it's time to inquire with your county assessor's office on how to dispute the assessed value. If insurance premiums are the problem, call your agent and review the policy for accuracy. You may even call for additional insurance quotes to try to bring the cost down.
No matter what happens, never stop communicating with your lender. If you find yourself unable to make the higher payments, call them to work something out. If they are unwilling to work with you, refinancing into a more affordable mortgage is always an option.
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About Me
- Arbor Mortgage
- Arbor Mortgage is a Michigan based mortgage lender that has been providing mortgage solutions for more than a decade. Since 1998, Arbor Mortgage has helped more than 20,000 people purchase or refinance their homes. Arbor offers a variety of mortgage programs including FHA, USDA Rural Development, VA, Conventional and Alternative loans.
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