Which Bills Will Be Paid from an Escrow Account?

One common question clients ask during a real estate transaction is, “Which bills will be paid from an escrow account?” It’s a crucial inquiry to understand how your financial responsibilities are managed. At Neighborhood Escrow, we are always ready to answer your questions and provide clarity throughout the escrow process. With our extensive experience and knowledge, you can trust us to guide you efficiently through your real estate transaction.

Bills Paid from an Escrow Account

An escrow account is designed to handle specific bills related to your property, ensuring that these essential payments are made on time. The following are typically paid from your escrow account:

Property Taxes

Your property taxes are a significant expense, and they are usually paid from your escrow account. This ensures that your taxes are paid promptly and that you avoid any late fees or penalties.

Homeowners Insurance

Homeowners insurance is another crucial expense covered by your escrow account. This insurance protects your property from various risks, and timely payments ensure that your coverage remains uninterrupted.

Mortgage Insurance

If your mortgage requires mortgage insurance, these premiums will also be paid from your escrow account. Mortgage insurance is typically required if your down payment is less than 20% of the property’s value, protecting the lender in case of default.

Flood Insurance

In some areas, flood insurance is required. If applicable, the premiums for this insurance will be paid from your escrow account, ensuring your property is protected from flood damage.

Bills Not Paid from an Escrow Account

While the escrow account covers many essential payments, some expenses need to be handled separately:

Interim Tax Bills and Special Assessments

Any interim tax bills, special or added tax assessments, or other fees not included in your regular property tax bill need to be paid separately.

Homeowners Association Fees

If your property is part of a homeowners association (HOA), you will need to pay these fees directly, as they are not typically covered by the escrow account.

Supplemental Tax Bills

Supplemental tax bills, which may arise from reassessment after a property purchase, are also not paid from your escrow account and must be managed separately.

Non-required Insurance Policies

Any insurance policies not required by your mortgage lender, such as personal property insurance, will need to be paid separately.

How Is My Escrow Amount Determined?

The amount required for your escrow account is estimated by calculating the expected cost of your property taxes and insurance over the next 12 months. This estimate is based on your loan closing documents, as well as information from the taxing authority and insurance company. The total estimated cost is divided by 12 and added to your monthly mortgage payment. Additionally, we ensure that your account maintains the minimum required balance throughout the year, adjusting payments as necessary to keep your account balanced.

Should I Have an Escrow Account?

Having an escrow account is highly recommended, even if it’s not required. If your down payment is less than 20% of the property’s value, an escrow account will be mandatory. However, the benefits extend beyond this requirement. An escrow account simplifies the management of large expenses like property taxes and insurance premiums, allowing you to make one combined mortgage and escrow payment each month. This convenience ensures that these critical bills are paid on time without you needing to save separately for them.

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