When it comes to owning a home, property taxes are a necessary expense that homeowners must budget for. Property taxes are typically collected by local governments to fund services such as schools, roads, and public safety. Many homeowners choose to pay their property taxes through an escrow account, which is set up by their mortgage lender.
Yes, property taxes are part of escrow. When you have a mortgage on your home, your lender may require you to pay your property taxes through an escrow account. This means that instead of paying your property taxes directly to the local government, your lender collects a portion of your property taxes each month along with your mortgage payment. Your lender then pays your property taxes on your behalf when they are due.
What is an escrow account?
An escrow account is a financial account set up by a third party to hold funds on behalf of two parties involved in a transaction. In the case of a mortgage, an escrow account is used to hold funds for property taxes and homeowners insurance.
How does an escrow account work for property taxes?
When you have an escrow account for your property taxes, your lender will estimate how much your property taxes will be for the year and divide that amount by 12. This monthly amount is then added to your mortgage payment.
Why do lenders require property taxes to be paid through escrow?
Lenders require property taxes to be paid through escrow to ensure that they are paid on time. Property taxes are a priority lien on a property, so if they are not paid, the local government could place a tax lien on the property.
Can I choose not to have an escrow account for my property taxes?
In some cases, borrowers may be able to opt out of having an escrow account for their property taxes, but this is less common. Lenders may require borrowers to have an escrow account if they have a low down payment or a poor credit history.
What happens if I don’t pay my property taxes through escrow?
If you fail to pay your property taxes through your escrow account, your lender may pay the taxes on your behalf and then bill you for the amount. If you still do not pay, your lender could foreclose on your home.
Can I change my mind and set up an escrow account for my property taxes later?
If you initially opt out of having an escrow account for your property taxes, you may be able to set one up later on. However, your lender may require you to pay a fee or meet certain criteria to do so.
How often are property taxes paid through escrow?
Property taxes are typically paid on a semi-annual basis. Your lender will collect a portion of your property taxes each month and then pay the full amount when it is due to the local government.
What happens if my property taxes increase or decrease?
If your property taxes increase or decrease, your lender will adjust the amount you pay into your escrow account accordingly. This can result in your monthly mortgage payment changing.
Can I pay my property taxes directly instead of using escrow?
Some borrowers may have the option to pay their property taxes directly instead of through an escrow account. However, this is less common and may not be allowed by all lenders.
What happens to the funds in my escrow account if I refinance or sell my home?
If you refinance your mortgage or sell your home, any funds remaining in your escrow account will typically be returned to you. Your lender will provide you with a final escrow statement detailing any remaining funds.
Are property taxes included in my monthly mortgage payment?
When you pay your property taxes through an escrow account, the amount is included in your monthly mortgage payment. This allows you to budget for your property taxes along with your mortgage payment each month.