How An Escrow Account Works - YouTube

hey y'all Jen Hernandez Loan with Jen how does  an escrow account work? So you are either forced  

to do an escrow account or you are considering  doing an escrow account you've watched our video  

on what does an escrow account mean stay tuned  and we're going to talk about exactly how it works

ok everybody we're back escrow so this is the  money held in custody by the lender for your  

taxes and your insurance you can choose to escrow  you can do it or not do it if you put 20% down on  

a conventional loan just to repeat the definition  but if you're putting less than 20% down the  

lender is mandating that you escrow it's because  you haven't demonstrated enough savings ability  

or discipline to pay the annual fees they don't  want to set you up for failure they want this  

to be easy for you so paying 1/12 of taxes and  insurance of your payment is a fantastic thing  

I do it even though I don't have to because it's  easy it's out of sight out of mind so I'm not late  

ok so here's how it works we're gonna take the  example of let's just say that your taxes are  

six thousand dollars a year and let which is five  hundred dollars a month and let's say that your  

homeowners insurance is twelve hundred dollars  a year or one hundred dollars a month ok so at  

the closing you are starting this escrow account  and some and explain how that works so the seller  

is gonna bring their portion let's say you're  closing in October 9 months have already passed  

so the sellers prorated portion is being held at  the title company and it's going to be sent to  

the lender so the lender is gonna have that money  from the seller at that closing ok once once that  

I'll get started so don't worry the title company  will transfer all that money and but your portion  

starting in October so your first payment is until  February December December is your first payment  

so what about November so that's one month that  they have to collect at the closing of your taxes  

so that's $500 in addition they collect two months  of escrow so two months of reserve or cushion  

collected in addition so that's another thousand  dollars so we're already at $1,500 for taxes one  

month for the month that you're not making a  payment in November and then the two months so  

that's three months total of the cushion because  taxes normally go up so there's always maintaining  

a cushion in your escrow account okay now let's  talk about insurance this is the one that I think  

a lot of people really don't think about so at  the closing you have to pay one year of insurance  

upfront everybody has to do that whether you  escrow or not so $1,200 is due to whoever you have  

chosen as your carrier for homeowners insurance  okay now at the closing so back to the example  

of October closing December first payment so when  your insurance renews next year and it's paid for  

another year ahead it's gonna renew you closed in  October it's gonna renew in September the reason  

is lenders always pay it a month early because if  you lapse and insurance you are just it's it's bad  

what if you have a fire or something so it renews  a month early so if you count on your fingers the  

number of payments between December remember  you closed in October and your first payment  

was December until the next September that's only  ten payments December January February March April  

May June July August September is ten but there's  my look at my hands ten months okay so ten months  

where's the other two we've got to send twelve  months to ABC insurance company so that two months  

that we know we're gonna be short is collected  at your closing initially so when you closed in  

October of whatever year we're collecting not  only one year of insurance but we're collecting  

that two months that we know we're going to be  short so we're collecting the 1200 plus 200 more  

extra dollars that's gonna sit there waiting for  that time next year when it's going to renew so  

I know I've thrown a lot of numbers at you so  I'm just gonna recap really really quick at the  

closing when you start the escrow account you're  putting three months of taxes one month for the  

month you're not paying the first payment and then  the two months cushion and then you're putting  

fourteen months total one-year of the first year  of insurance and then the two months that you're  

going to be short later on you're putting those  fourteen months in the escrow account okay so  

that's how escrow works and then annually ABC  lender is going to pay those bills in full and  

so every one important reminder is every February  all the lenders all across the country February  

and March is when they reconcile so every February  that you have an escrow account you're gonna get  

a reconciliation and that is going to be a fun  time where you're gonna find out did my taxes  

and my insurance that were paid the year before  did they increase did they decrease do they stay  

the same so you need to watch our video on oh my  gosh my my account my escrow account is short so  

when that happens watch our other video and we're  gonna walk you through it but I hope that you have  

enjoyed this and learned the mechanics of how a  escrow account works and we'll talk to you soon

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expressed here do not reflect  those of legacy mutual mortgage