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Old 09-10-2008, 01:16 AM
 
Location: Not where you ever lived
11,544 posts, read 25,103,091 times
Reputation: 6189

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Escrow? Escrow is the separate account realtors must have for client funds. It is illegal to co-mingle funds. Buyers are usually required to pay inspections, down payment, proof of one year pre-paid insurance and buyers closing costs.

If you do not pay 20% down the lender usually requires PMI. which means your monthly payment includes Principle, Mortgage Insurance and taxes until the 20% is paid. That money goes into your Lenders escrow account - from which your house insurance and real estate taxes are paid annually. This is not an interest bearing account and you should not be charged for it since it is required by law.

You can have a sepaprate account for your money, but the Lender is sill obliged to collect the PMI and place it in thee corproate escrow account. The client does not normally have a private escrow acount. This may vary from state to state.

Last edited by linicx; 09-10-2008 at 01:24 AM.. Reason: script
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Old 09-10-2008, 01:17 AM
 
Location: Not where you ever lived
11,544 posts, read 25,103,091 times
Reputation: 6189
Escrow? Escrow is the separate account realtors must have for client funds. It is illegal to co-mingle funds. Buyers are usually required to pay inspections, down payment, proof of one year pre-paid insurance and buyers closing costs.

If you do not pay 20% down the lender usually requires PMI. which means your monthly payment includes Principle, Mortgage Insurance and tases until the 20% is paid. That money goes inot the Lenders escrow account - from which they pay your house insurane and real estate taxes. This is not an interest bearing account and you should not be charged for it since it is required by law. .
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Old 09-10-2008, 06:12 AM
 
Location: Land of Free Johnson-Weld-2016
6,474 posts, read 13,422,991 times
Reputation: 6404
Quote:
Originally Posted by Timnwendy View Post
My opinion: If you can afford to pay the required 20% down payment to opt out of escroe, you should do so. By avoiding escroe, you avoid paying the extra monthly costs for taxes, insurance, etc. Instead, you get to keep this money in your own interest-bearing account, to be withdrawn when the bills come due (usually annually). Your mortgage company is going to draw interest on your escroe account anyway, so why not avoid them and earn the interest for yourself?
Exactly. You may also be able to ask your mortgage company to WAIVE the fee for opting out of escrow even though you only put down 10 or 15 percent. By law banks can charge you much more per month than you actually need to pay your taxes and insurance. My bank's policy was to keep 2X my monthly payment in escrow at all times and still charge me hundreds of dollars a month for "escrow." It didn't matter that the total of these amounts where much higher than actually needed to pay my taxes and insurance.

Also, if the bank decides to increase your monthly payment by $500 for escrow and you don't pay, they can foreclose on your home in as little as 30 days (I believe). If you don't pay your property taxes, it can take much longer for the government to put a lien on your home. Just do the math. If you can afford to pay your insurance monthly, even if it doubles as well as pay a couple of thousand for your property tax each year, I would recommend DIY.

If you are responsible enough to set aside the money each year to pay your taxes and insurance, you will be fine. You may need to save 1-2K more than you would actually need for your taxes, just in case. BTW, since I notified my tax office that I will pay the taxes, I found out that my mortgage company apparently paid my taxes TWICE one year. That's how much of my money they had just lying around, I guess! I should have been paying attention, but I guess I just relied on them to pay the taxes and insurance since they have fancy computer systems. I should have known better. So now, I'm entitled to a refund, but that will take about 6 months. I doubt that I would have paid property taxes twice on my own.
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Old 09-10-2008, 07:36 AM
 
Location: Tampa,FL
54 posts, read 238,740 times
Reputation: 18
I agree to jsut do the escrow. I have 2 houses that have it and one that does not. I much rather just pay the monthly payment all together and let the lender take care of paying it later. Agreed you can save the money til the end of the year and make a few extra bucks, but to me it is not worth it.

I have never heard of a lender not requiring escrow with more than 80% LTV. Good luck either way.
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Old 09-10-2008, 12:58 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,596,105 times
Reputation: 249
Quote:
Originally Posted by linicx View Post
Escrow? Escrow is the separate account realtors must have for client funds. It is illegal to co-mingle funds. Buyers are usually required to pay inspections, down payment, proof of one year pre-paid insurance and buyers closing costs.

If you do not pay 20% down the lender usually requires PMI. which means your monthly payment includes Principle, Mortgage Insurance and tases until the 20% is paid. That money goes inot the Lenders escrow account - from which they pay your house insurane and real estate taxes. This is not an interest bearing account and you should not be charged for it since it is required by law. .
your very confused.
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Old 09-10-2008, 03:41 PM
 
983 posts, read 3,486,538 times
Reputation: 357
Here are the pros and cons of using an escrow account.

pros:

1. Don't have to worry about the due dates for property taxes (could be plural because of county and school tax being collected differently) and insurances (again could be plural because of HOI and flood insurance). It can be 4 payments.

2. Your monthly spending will be smooth out. Instead of making one lumpsum payment on the due date, escrow account make you budget it.


cons

1. Forgone interests. The escrow account is a interest non bearing account. So you basically give your money to the bank and forgo interests. The correct way to measure this cost is 0.5* (annual tax + HOI) * interest rate. For example, if the annual taxes and insurance premium is $6000 and the interest rate is 3%, then the monthly interest you give up is 0.5 * 6000 * 0.03 = $90.

To sum, when you use escrow account, you pay the interest for its convenience. Whether it's worthwhile or not is solely a personal decision. Compare the cost and benefit.
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Old 09-10-2008, 04:05 PM
 
Location: Plano, Texas
1,676 posts, read 6,337,485 times
Reputation: 684
Quote:
Originally Posted by acegolfer View Post
Here are the pros and cons of using an escrow account.

pros:

1. Don't have to worry about the due dates for property taxes (could be plural because of county and school tax being collected differently) and insurances (again could be plural because of HOI and flood insurance). It can be 4 payments.

2. Your monthly spending will be smooth out. Instead of making one lumpsum payment on the due date, escrow account make you budget it.


cons

1. Forgone interests. The escrow account is a interest non bearing account. So you basically give your money to the bank and forgo interests. The correct way to measure this cost is 0.5* (annual tax + HOI) * interest rate. For example, if the annual taxes and insurance premium is $6000 and the interest rate is 3%, then the monthly interest you give up is 0.5 * 6000 * 0.03 = $90.

To sum, when you use escrow account, you pay the interest for its convenience. Whether it's worthwhile or not is solely a personal decision. Compare the cost and benefit.

That was one of the best explanations of the pros and cons, but i prefer to say benefits and drawbacks, of escrow account. Escrow accounts are easier, but financially it is better to not escrow as you are giving up the opportunity to make money.
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Old 10-29-2008, 05:39 AM
 
1 posts, read 5,890 times
Reputation: 10
For me it's also a matter of the month to month payment.

I have insurance of $780 and Taxes of $6700 a year.

So, I'll pay for the insurance in one yearly payment so i won't have to contend with monthly insurance payments added to an escrow account.

I then just have to contend with mortgage and taxes that have to be paid quarterly.

I've recently found out that tax collection gives you up to a month extra to come up with your quarterly payment without penalty.

This is a huge help for us because what was once a $2501 mortgage with escrow is now $1867 with options.

-jj
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Old 10-29-2008, 07:30 AM
 
878 posts, read 1,847,431 times
Reputation: 460
To me, escrow makes as much sense as credit card insurance.

The purpose of escrow is not to protect me, but to protect my bank. If I default on my taxes, the city gets a lien with priority over the bank. Therefore, it's in the best interest of the bank to make sure I pay my taxes, because if I don't, then the value of their lien is reduced.

Are you willing to pay $100 a year to insurance for the bank's interest in your house? I think the idea is silly.
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Old 10-29-2008, 02:31 PM
 
Location: Dallas
87 posts, read 285,907 times
Reputation: 40
Default Agree

Quote:
Originally Posted by sbhubbell View Post
I've owned three houses...the first one we escrowed our taxes, the second one we decided not to, and the third one we did again. I found it just easier to increase my monthly payment to include my taxes instead of saving it up in my own bank account and paying it in a lump sum once a year. If you are SUPER vigilant and want to make that 2% interest or whatever on your own money, don't escrow. But to me it wasn't worth the hassle not to.
We did the same thing. Had escrow, didn't, and now do again by choice. It's just easier for us.
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