What is an Escrow Analysis and What Can it Tell You About Your Real Estate Transaction?
Once the sale is over and you are in your new home, you might start looking through the seemingly endless list of papers you signed and reviewed at the time of the sale. You might find that “escrow analysis” is a term that pops up over and over again. Keep reading to find out what exactly it refers to from the pros at Neighborhood Escrow.
What Exactly is an Escrow Analysis?
The first thing to cover is what an escrow analysis is. It is conducted yearly with the goal of ensuring that you have enough money within your escrow account for everything that will be paid out of it. All of the items that are paid out of the account are due at different times – in fact, some insurance you pay might only be due every three years – which can make this a complicated task.
To ensure that there is never a negative balance in the escrow account, your lender will use a variety of strategies, which may include have an extra two months of escrow payments in the account. This acts as a cushion if it look as though your account might be low one or more months in the following year.
An Escrow Analysis Will Sometimes Uncover a Shortage or Surplus
When the analysis is complete, there are three options. Ideally, the result would be that it was balanced. However, the other two options are that you have a surplus or a shortage in the account. This can occur due to property taxes going up or down, or changes in the value of your property. if you have a surplus then you will get a check for that surplus.
On the other hand, if there is a shortage then you should expect your escrow payments to go up until the difference is paid off. You will also likely have a higher escrow payment due to the higher taxes, value, or insurance premiums too.
You Can Request an Escrow Analysis
While an escrow analysis is generally done automatically every year, if there is a reason that you want one done earlier, you can ask your lender. For example, if you are making a budget for an upcoming year and want to know if you can expect higher escrow payments, or if your home has recently increased in value and you know the cost will go up but do not want to wait to find out how much.
The escrow analysis might seem confusing but you can always talk to the company that created to find out what each of the numbers mean. The longer you own your home, the more of them you will see, and the more used to them you will be.