Owning a home comes with many responsibilities, one of which is paying property taxes. In many cases, homeowners opt to pay their property taxes through an escrow account. But how exactly does this process work? Let’s take a closer look.
How do you pay property taxes with escrow?
**When you pay your mortgage, a portion of your monthly payment is set aside in an escrow account to cover expenses like property taxes and homeowners insurance. When your property taxes are due, your mortgage servicer will use the funds in the escrow account to pay them on your behalf.**
1. What is an escrow account?
An escrow account is a separate account held by your mortgage servicer to cover expenses like property taxes and homeowners insurance.
2. Why do some homeowners choose to pay property taxes through escrow?
Paying property taxes through escrow can help homeowners budget for their taxes, avoid late payments, and ensure that taxes are paid on time.
3. How are the funds in an escrow account calculated?
The amount of money in your escrow account is determined by dividing the total annual cost of property taxes and insurance by 12, and adding that amount to your monthly mortgage payment.
4. Can homeowners choose to pay their property taxes directly instead of through escrow?
Yes, homeowners are allowed to pay their property taxes directly if they prefer. However, most lenders require borrowers with less than 20% equity in their homes to pay through escrow.
5. What happens if there is a shortage in the escrow account?
If there is a shortage in the escrow account, the homeowner may be required to make up the difference by paying a lump sum or by increasing their monthly mortgage payments.
6. How often are property taxes paid from an escrow account?
Property taxes are typically paid annually, but some homeowners may choose to pay them semi-annually or quarterly.
7. Are homeowners allowed to change how they pay their property taxes after closing?
Homeowners can request to stop paying through escrow if they have more than 20% equity in their home, but lenders may still require escrow accounts for other reasons.
8. What happens if property taxes increase or decrease?
If property taxes increase, the amount set aside in the escrow account will need to be adjusted accordingly. Conversely, if property taxes decrease, homeowners may receive a refund or a reduction in their monthly mortgage payments.
9. Can homeowners waive the escrow account requirement?
In some cases, homeowners may be able to waive the escrow account requirement if they meet certain criteria set by their lender, such as having a high credit score or a low loan-to-value ratio.
10. Are there any fees associated with using an escrow account?
While there may be some fees associated with setting up an escrow account, such as an initial escrow deposit, the convenience and peace of mind it provides often outweigh the costs.
11. What happens if a homeowner misses a property tax payment from their escrow account?
If a homeowner misses a property tax payment from their escrow account, they may face penalties from the taxing authority and risk having a lien placed on their property.
12. Can homeowners monitor their escrow account activity?
Yes, homeowners can typically monitor their escrow account activity online through their mortgage servicer’s website, where they can view balances, payments, and upcoming expenses.