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Learn About Escrow Accounts | The Brandy Whitmire Mortgage Team - YouTube
Channel: Brandy Whitmire
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- I am Brandy Whitmire,
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I am your direct lender,
banker, broker, mortgage lender
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nationwide, we have every
product under the sun,
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can help you out with your
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purchases, refinances, anything you want.
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Today I am going to talk about,
what is an escrow account
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and do I need one? How does it work?
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Basically, a few questions
that I get, I'm just
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gonna go over some of the
basic questions that I get
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over and over whenever I'm
doing a purchase or a refinance.
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One of those would be,
obviously, what is it?
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Is it required to escrow?, Why
did my escrow account go up?
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Is the lender trying to take
me for all I have or what?
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Why are they asking for more
money and what does that mean?
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What happens whenever I purchase a home
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and the taxes have already
been going on for six months,
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what happens at that point?
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Do I get a credit or do I owe that?
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What happens to the old
account whenever I refinance?
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Does it transfer over or,
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can I move it to a new...
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What happens to that
balance in the other account
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when I rebuild it?
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First of all I want to talk about,
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what is an escrow account.
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Essentially, an escrow account is a
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piggyback account or loan
that is on top of your
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regular loan, your first lien of the home.
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It's like a piggyback bank account.
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It's basically where you can't touch it
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and the lender can't touch it.
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So people... We can't
take from that account
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in order to pay your
principal and interest payment
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and you can't go take money
out of that account either.
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It's basically a safe account,
it's an escrow account.
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That account will hold your taxes
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and your insurance every month.
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So it will be your monthly
portion of your payment,
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that you're paying towards
taxes and insurance,
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that goes into the escrow account.
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It doesn't go into the fund where
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your principal and interest goes.
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In that account you will also have
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two months worth of cushion.
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So that whenever the bills come due,
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the lender will be able to
pay your tax bill when it
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comes due from the government,
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from the city, or the county, actually,
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and will be able to pay your insurance,
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when your insurance
comes due which could be
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any time of the year depending on
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whenever you actually purchased the home.
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If you purchased it in March,
it will be due in March.
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Your taxes are due
anywhere from, it could be
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you know, here in Dallas the
bills come out on November 1st.
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In California, we pay them bi-yearly.
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So it just depends on that
county whenever the taxes are due
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for that county is whenever
they're gonna get paid out.
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That account will basically have that
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and then plus two months'
cushion, just in case there
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is an escrow shortage, just
in case those bills went up,
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there's two months worth
of cushion in that account
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for your taxes and your
insurance, so that, the lender,
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or the servicer, really, wherever you make
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your payments into, can
pay them when they're due.
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Second question is, what happens if there
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is an escrow account
and why did that happen?
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What happens if there's a shortage?
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Basically, this only
happens, the only time
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you're going to have a
shortage is whenever your taxes
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and your insurance go up.
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That means that literally
the lender or the servicer,
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technically, the servicer
got that insurance bill,
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got that tax bill, paid
it and it was more than
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that initial projected amount, whenever
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they did the last bill or
last refinance or purchase;
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whenever it was initiated the last time.
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So the previous time they
got that bill, or estimate
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from the county or the
insurance, that's now gone up.
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That doesn't mean that your
lender not going to pay that.
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Let's say your insurance
goes up 1,000 bucks a year,
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your lender still going to
pay that because we've assured
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you of this escrow account
but it came from somewhere.
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You have a two month cushion in there
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but we have to make up that shortage
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and then we have to get
the money back from you.
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That could be in a lump
sum or it could be monthly
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or whatever the case may be.
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So if the bills go up, it
creates a escrow shortage.
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Whenever that happens
you can pay one lump sum
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or you might, in the beginning
of the year, a lot of people,
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I do a ton or refinances in
the beginning of the year, why?
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Because, as appraised values go up,
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guess what? your taxes go up.
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Your taxes are based off of you
appraised value of the home.
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So it's a double-edge sword, right?
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Like, I don't want my taxes to go up.
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Okay, well, do you want
your value to go up?
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Yeah, so, when your value goes
up, the taxes go up, right?
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and the county value is not typically what
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your actual appraised value is gonna be.
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It's just going to be a county assessment.
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Thankfully, right?, Because
some of these, you know,
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places are appraising so high.
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If you were actually paying taxes on
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what your appraised value
would be, you'd be really, mad.
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When that happens again, we
got to get that money back
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from you, again, I do
refinances a lot in the
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beginning of the year because
whenever you refinance
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you can rebuild your
escrow account, to rebuild
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the escrow account to get
your two months cushion back
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and get the bill ready,
basically for the next time.
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This especially happens in new builds,
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because whenever you're building a home
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typically that land value
or the new improved value
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is going to be a lot lower.
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So let's say you're building a home
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and we assess taxes on, $200,000,
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and we got the appraisal,
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or the county went back and said,
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"Hey, all these homes built
up, built up all around you
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"and now the house is
actually worth two-fifty,
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according to that", but we did
an appraisal for almost 300,
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whatever the case may
be, that's gonna make
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your tax bill jump up, quite high, right?
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Anyway, a way to get
that taken care of is pay
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one lump sum, pay it in
your monthly payments,
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or refinance and get the
whole thing back rebuilt
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and see if there's any benefit there.
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Sometimes, what if there's a
surplus in my account, right?
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What if I actually dealt
with my insurance company
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and they were charging me two grand,
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I went to another insurance
company and they're only
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charging me a grand a year?
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What happens to the extra
thousand dollars for the year?
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Well, they will cut you a check.
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The lender or servicer
will cut you a check
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for a surplus as long as it's over $50.
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If it's less than $50, then it's going
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to be applied to that next year.
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Anything over 50 bucks, the lender,
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the servicer, cannot keep that money.
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It has to be refunded
back to you, immediately.
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Another question is, do I have to escrow?
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This is a big question, a lot of people
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don't wanna escrow, especially
my investors out there;
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'cause they wanna put all
of their money that they can
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into another investment,
or an interest-bearing
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account, or whatever the case may be.
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Their financial advisor
wants to keep as much
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money in their accounts, or whatever.
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Anyway, do I have to
escrow? The answer is this:
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If it's a government-insured loan,
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which means is a VA loan,
an FHA loan or a USDA loan,
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then yes, absolutely you
always have to escrow.
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No matter what, there's
no ifs, ands, or buts,
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you have to escrow your
taxes and insurance.
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However, on a conventional loan,
as long as your first lien,
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is at 80%, you do not have to escrow.
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Why am I saying the first lien at 80%?
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Let's say you are buying
a home for $100.000
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and you take out a 95% loan, which means,
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you're taking out a $95,000 loan.
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Well that's gonna be over
80%, so yes, you must escrow
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your taxes and insurance because your
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first lien is over 80% loan-to-value.
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However, on conventional loans,
you can take two liens out,
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so you could take, on that same instance,
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you can that $100,000
purchase price, you could
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do one loan, for 80.000 and you could do
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the second loan for
15,000, so all together
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that's gonna be $95,000;
in that case, you do not
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have too escrow and, by
the way, you won't have
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mortgage insurance, because
as long as that first
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lien is at 80%, you're
not required to escrow
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and you avoid mortgage insurance.
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Now, that second lien
might be a higher rate,
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whatever the case might be,
you'd want to look at that,
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but most often, it's
gonna be better for you
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if you don't want to escrow
especially, or if you don't
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want the mortgage insurance
to do a conventional loan,
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first lien at 80% and the
second lien at the additional,
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whatever you are at,
if you're doing a 95%,
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85%, or 90%; it doesn't matter.
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The way to avoid that is
to actually cut that down
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to two loans and that
way you can avoid it.
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What happens to an
escrow account whenever,
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I am purchasing a home?
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Let's say you're purchasing a home in June
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and your lender sends
you a closing estimate
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and it shows that you owe,
six months worth of taxes
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plus two month's cushion, you're looking
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at it like, "Hey wait a
minute, why am I paying
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"eight months?" Well you're not.
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We have to, again, have
to have enough money
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in there to pay your bill when it's due.
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We have to collect from
you, the six months
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plus two months cushion,
so that's eight months;
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however, on that closing disclosure you're
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gonna see an an aggregate
amount from the seller.
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The seller has to pay for
the taxes, for the time
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that they've lived in that home.
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You're gonna see a
credit, from the seller,
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for the taxes for those
six months, then you're
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paying two month's cushion
plus probably one more,
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because you are paying
one month into arrears.
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Technically, you'd have
nine months on that,
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but you're not paying that nine months,
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but it has to go in your account, 'cause
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we have to pay them when they're due.
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On insurance, you're
starting that right away.
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Again, let's talk about June, so in June,
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you're paying one month,
upfront, in your insurance
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plus two months' cushions.
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So you're gonna have 14
months of insurance in there,
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so your insurance starts in the month
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that you, actually purchase the home.
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Same thing on a refinance,
what happens on a refinance?
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On a refinance, often times
they'll say, "Okay, hey
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"can I transfer my escrow
account? I already have
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"3,000 on my other escrow
account, what happens to that?"
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If you're working with the
same lender, for example,
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if you have a loan with me
and I'm servicing your loan...
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we can transfer that, it's
called, netting the escrows,
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we can transfer that to the new account.
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Most often, that's probably not gonna
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happen, it just depends, because...
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You might be able to; however,
in the case that you're not,
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on the new account, you're
obviously, rebuilding
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that escrow account, so you're getting
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enough taxes and insurance in that account
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to pay the tax and insurance amount,
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when they're due, plus
the two month cushion.
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The previous account, that
you had, on the other loan,
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that is refunded to you,
within 30 days of closing.
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You will get that check back in the mail
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and when you get that check
back, I just had a friend
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that called me and said, "Hey,
I got a $2,600 check back,
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"what do I do with it? Do I
owe?" And she was freaking out
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she was thinking that
like, "we didn't collect
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the amount of money" and whatever,
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and I'm like, no, you deposit that.
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You deposit that $2,600
into your bank account
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and do whatever you want with
it; pay down your mortgage,
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go on a trip, pay off high interest
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debt, do whatever you want with it.
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That check is yours to do
whatever you want to do, okay?
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Now, on the refinance, you can...
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you're taking this account,
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you're rebuilding it
and you're getting that,
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so, you can bring that
closing if you want to,
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'cause you are deferring a payment or two.
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You can roll it into the
account and sometimes
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you can pay for that account
with your interest rate
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if you choose a higher rate
with the lender credit,
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you might be able to pay
those taxes and insurance
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with the interest rate,
you just need to call us
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and let us see if that's available to you.
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Often times it's what I do, so I can make
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a little bit more money
and manipulate the money
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a little bit more, anyway.
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That is a lot about an
escrow account; however it's
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a question that we get
a ton and it's really
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important to understand, because
it scares a lot of people
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away, because those numbers
can get really high,
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especially if you have a $4,000 tax bill.
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Sometimes, I have people that have
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$25,000 property tax bills,
I have people who have
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$5,000 insurance bills, per month.
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Great question Shelley,
"What about flood insurance?"
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Flood insurance is, directed by FEMA.
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Flood insurance is over and
above, hazard insurance.
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We collect hazard insurance
in your escrow account;
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however, we don't collect
the flood insurance.
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The flood insurance
has to be paid directly
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to FEMA; that's a government
charge paid directly to FEMA.
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However, I do believe,
Shelley, in some cases now,
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are we able to escrow the flood insurance?
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I believe that we can in
some cases, now I think we
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have a product right now,
that's actually making us now
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escrow the flood insurance,
because of some of the
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hurricanes and things
that have been happening,
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but we'd have to look at that county
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and that actual product.
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It just depends on the
product and things like that,
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but, great question Shelley and
we do get that a lot as well
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especially in our coastal
states like, Florida,
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Louisiana, Alabama and...
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California. Yes always escrow that
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and that, again is a
FEMA charge and always,
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not based off of anything from the lender
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and that's something
important to know too,
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the lender does not tell
you what your taxes are,
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what your insurance are, what
your flood insurance are.
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The taxes come directly from the county.
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The insurance comes directly
from your insurance company,
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and the flood insurance
comes directly from FEMA.
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That is, again, that's a
lot about an escrow account,
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but it's very important, 'cause it scares
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a lot of people away,
like I said, but if you
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have any other questions
on escrow accounts,
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which is, of such an amazing
and interesting topic,
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obviously, but if you have
any other questions on escrow
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accounts, how it works
and if you need it and how
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you can manipulate it, also, there's ways,
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then reach out to us.
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You can email me,
[email protected], you can
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call us at (214) 660-5000,
you can go to our website,
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brandywhitmire.com, you can send a pigeon,
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you can do whatever you want, just reach
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out to us any way that you can.
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We would love to help you
on your refinance, see
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if there's a benefit for
you, see if you can reduce
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your rate, your term, help
you make some money on it
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and absolutely work on your
next purchase, your second home,
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vacation home or your next investment.
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Thank you very much for tuning in,
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I hope this was helpful and informative.
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Let me know if there's any other topics
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that you want to discuss and,
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I will be with you next time,
next week at six o'clock.
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Hope to talk to you soon.
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