understanding escrow mortgage homebuying loan
Understanding Escrow for Mortgage and Homebuying, Part 1
June 9, 2020
Escrow paper with pen, book, Goggle
Understanding Escrow for Mortgage and Homebuying, Part 3
August 11, 2020
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Understanding Escrow for Mortgage and Homebuying, Part 2

understanding escrow mortgage homebuying

In part one of this multi-part blog series, we went over some of the basics on escrow accounts and how they’re used during a mortgage and homebuying situation. Escrow is in place to protect both buyers and sellers during such high-value transactions, and includes money being held by a third party during certain portions of the negotiation.

At Primary Residential Mortgage, we’re happy to offer a wide range of mortgage loan options, from conventional loans and other programs like FHA and VA to mortgage refinance options – plus information on escrow and how it might be used in your situation. In today’s part two of our series, we’ll dig into some important escrow terms to know, plus some basics on expenses not included in escrow funds and how you may be able to opt out of escrow in some situations.

Terms to Know

The mortgage world may come with several terms you were previously unaware of, including a few within the realm of escrow. A few areas to keep in mind:

  • Earnest money: As we went over in part one, earnest money is a term used to refer to a good-faith deposit made by the buyer in exchange for the seller pulling the home off the market during negotiations.
  • Escrow, impound or reserves: These all mean the same thing – money held by a third party until the contract terms are decided.
  • Prepaids: This term will sometimes be used while discussing insurance and tax expenses within the realm of escrow.
  • Closing of escrow: When the contract is confirmed and the earnest money is dispensed, usually by an escrow officer, lawyer or other financial professional.

Non-Escrow Expenses

Now, it’s important to note that there are expenses within the homebuying and mortgage process that will not be covered by escrow accounts. Homeownership fees like utility bills, HOA costs or supplemental tax bills, for instance, are not covered by escrow accounts, even in cases where such accounts are used for certain homeownership expenses.

Opting Out of Escrow

As we noted in part one of our series and above, escrow is also often used for paying certain homeownership expenses once the sale is completed. However, there are situations where you can opt out of his form of escrow usage, instead paying for things like property taxes and insurance yourself – our mortgage experts will inform you of whether this might be the right call in your situation.

In other circumstances, this will not be allowed. VA loans, for instance, require at least a 10% down payment and strong credit – if these are not present, escrow will be a requirement. Conventional loans require a 20% down payment or above to opt out, and FHA loans simply offer no opt-out option whatsoever.

For more on escrow accounts and homebuying, or to learn about any of our mortgage services, speak to the staff at Primary Residential Mortgage today.

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.

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