Using an escrow account is an easy way to manage your property tax payments, homeowners insurance premiums, and other mortgage-related items. It’s a separate account that’s funded each month via a portion of your monthly mortgage payment and your lender uses to make payments for these mortgage-related expenses on your behalf. In some cases, you’re required to open an escrow account before you close on your mortgage. Or you may simply choose to open one to help manage these large mortgage-related expenses.
No matter your situation, there are six important facts you should know about your escrow account.
FACT #1: Your escrow account is funded using a portion of your mortgage payment.
Each month, in addition to paying the principal and interest on your loan, you pay a portion of what is needed to satisfy your taxes and/or other insurance premiums to fund your escrow account. Your loan servicer uses these funds to pay your tax and/or insurance bills when they are due. You’ll experience peace of mind knowing those mortgage-related bills will be paid on time — all you need to do is make your monthly mortgage payment.
FACT #2: The amount your servicer expects to pay from your escrow account is based on estimates.
When your escrow account was originally created, your lender determined the amount needed to fund the account by taking projections from your closing documents, local property tax office, and insurance company. For example, if your annual property taxes were estimated to be $5,000 and all annual insurance premiums projected to be $1,500, the total amount estimated to be paid annually from your escrow account was $6,500.
Watch a short video about how Wells Fargo calculates your escrow account.
FACT #3: Your escrow account is reviewed at least annually, and adjustments may be made.
Because property taxes and insurance premiums may change annually, your account will be reviewed at least once per year to ensure adequate funds are collected to cover these payments. Upon completion of this review, you’ll receive an Escrow Review Statement, which will include the details of the review and if applicable, the new monthly mortgage payment amount for the coming year.
FACT #4: Your escrow account may require a minimum balance.
Most lenders require you to maintain a minimum balance in your escrow account — typically around two months of escrow payments at any given time. This requirement helps cover any differences that may exist between estimated costs and your actual payments made throughout the year. If there are funds left in your account after all payments are made, this is considered an overage of funds, and you’ll receive a refund for that amount as part of the annual review. If there’s a shortage of funds, you can choose to pay the entire amount at one time or spread the amount owed over 12 monthly payments via an increased monthly mortgage payment.
FACT #5: You may conveniently view your escrow account at any time.
If you want to know where your escrow account stands, your Escrow Review Statement is a great place to start. You can also review your account online by signing in to your mortgage account. Here you can see when escrow payments are scheduled, as well as your current account balance.
FACT #6: You can open an escrow account after closing.
You’ll find an escrow account particularly helpful in managing your property tax and insurance payments throughout the year. If you’d like to open an escrow account, even after closing, we’ll need some information initially about your property tax and insurance bills. But once established, you’ll make one payment a month (for both your escrow and mortgage) and never have to think about making the payment for your property tax or insurance bills again because we’ll do it for you. If you don’t have an escrow account with us and want to open one, we’d be happy to help you.
Learn more about opening an escrow account here.
If you have further questions, we’re here to help. Give us a call at 1-866-234-8271. Or, review some of the most commonly asked questions about Wells Fargo escrow accounts.