Home loans: Escrow Analysis

There should be appropriate communication between the lender and borrower where loans and mortgages are concerned. Once the deal is fixed lender is bound to give periodic reports and statement of payments made to the lender. An escrow analysis is the report that is submitted to the borrower by lender and gives details of monthly payments, tax deductions and exemptions. The period of time the report analyses is usually one year.

It is important for the borrower to keep track of his escrow account and be aware of the balance there. Ideally an escrow analysis report should contain certain particulars.

• It should contain a copy of initial statement of escrow account.
• The report should give a history of the account which should contain details of the year’s transactions.
• The activity that would be required in coming annual year should be explained in detail. Scheduled payments and disbursements can be considered for this computation.
• Details of monthly payments and amount being put in escrow account. The same calculation for the computed year should be briefed.
• Balance in the escrow account at the time of computation.
• Details of taxes paid, premiums of insurance and other charges that wee paid from escrow account during the analyzed year.
• Explanations of excess amount and their uses.
• Details of shortages and their payment limits. The lender would usually give various options for the collection of this deficient amount. Many prefer full payment within 60 days or sometimes the amount can be spread over the coming year.
• There can be instances where the escrow is underestimated by lender and explanations should be given by lender as to this erroneous calculation.
• Excess funds in escrow account should be shown and this amount has to be refunded by lender within a period of 30 days of submission of report. Any amount greater then $50 is taken as excess. Sometimes excess amount can be used for the following years’ payments.

Escrow accounts should be studied in detail before applying for a new loan. Lender can be contacted for verifications and explanations regarding the same. Escrow can be avoided altogether if borrower makes a huge; down payment. There are waivers for escrow that can be applied with the consent of lender. But it is always better to maintain an escrow account since then the loss of property to tax sale in case of defaults can be avoided.  Another advantage is that in absence of escrow accounts it would become increasingly difficult for the government to collect taxes on each and every house and thus lead to increase in amount of tax to be paid.

Usually lenders send a list of all the tax payers along with check as tax. The county government gets almost 300 to 400 escrow checks that would amount to nearly 90% of county homeowners. Thus this program of collecting taxes from escrow accounts is very convenient for lenders, borrowers and the government. It would also avoid situations where in homeowners would not have money to pay taxes at the prescribed time.