What Is Escrow? Answers to Common Questions - Quicken Loans Zing BlogI started to begin this post by explaining what escrow is, but that seemed too sudden. So I backed it up to see where the word came from – it’s always been one of those words that sounds really strange to me. Apparently, escrow comes from a combination of turn-of-the-17th-century Anglo-French and Old French and maybe Old High German words for scrap or scroll. These scraps of scrolls were usually contracts or deeds that were given to a third party for safe keeping.

Fast forwarding to 21st-century mortgages, an escrow is money your mortgage lender puts into a separate account to pay your future property taxes and insurance costs. It’s common to have an escrow account with your mortgage, but it’s not always required. Our escrow team put together some of the common questions (and answers!) they receive about escrow, and I’m sharing them here to help clarify the muddy waters of escrow for you.

How Do I Know If I Have an Escrow Account?

Your banker or loan officer would have discussed the escrow account with you as you were going through the loan process. Also, once you close your loan, your monthly billing statement shows how much of the money you paid went to your escrow account, and you get a yearly escrow analysis showing the details of the account – we’ll talk more about this below.

What’s the Benefit of Having an Escrow Account?

Why should someone else manage your money for you? Isn’t it easier to just do it yourself? Well, if you have an escrow account, whoever manages the account will be estimating the amount of taxes and insurance you’ll have to pay, and they’ll break that money down into manageable chunks rolled into your monthly mortgage payment.

How Is Escrow Calculated?

So it makes sense to have an escrow account, but how do they know how much money you have to pay into it? All of your insurance and tax payments that will be made over the next 12 months are added together and then divided by 12, and that number is added to your monthly mortgage payment so you only have one payment that you have to make each month.

The U.S. Department of Housing and Urban Development (HUD) explains this in much more detail if you want to check it out. Because payment’s due for each item at different times, some months you’ll have a lot of extra money in your account and some months you could actually have a negative balance. To make it more complicated, some types of insurance only have to be paid every three years, which can really mess up your 12-month plan.

To avoid a negative balance, your lender or escrow holder will do a couple things. Usually, they’ll have you put an extra two months of escrow payments, called a cushion, in your account. If, after that cushion, the 12-month forecast shows that you’ll be low one month, your escrow payment will be increased enough so you’ll still have enough money in the account.

What Is an Escrow Analysis?

In the last question, we talked about making sure there’s enough money in your escrow account every month. Performing an escrow analysis is how you do that. This is done once a year, but you can also request to have one done at another time. Sometimes there can be a shortage in your account if your property taxes or your insurance premiums increase. In this case, your monthly payment will go up.

If the analysis finds that you’ve got the right amount of money in the account, sweet! If you have a surplus of more than $50, you’ll get an escrow surplus check sent to you. When the surplus is less than $50, your next payment will be that much less. There are a few reasons a surplus can happen. For instance, an escrow item being dropped from your account, like an insurance policy or a tax exemption, could result in a surplus.

Having this scrap of scroll doesn’t have to be complicated or scary once you break it down a bit – you could actually get money back from it! Probably best not to hold your breath, though, just in case. Did we answer all of your questions here? What other escrow stuff are you wondering about?

 

This Post Has 15 Comments

  1. I just received my statement and realized that my 2015 township taxes were paid on 1/11/2016. Obviously, I am very unhappy. This payment in 2016 deprives me of my legitimate 2015 tax deduction – a costly error. If I’m late with my mortgage payment, I pay a penalty. I wonder if Quicken is under the same obligation? My suggestion – don’t escrow with Quicken.

    1. Hi Sharon:

      We’re sorry you’ve had this poor experience. We’re currently researching your situation and will be reaching out later today. Thanks for reaching out and giving us the opportunity to look into this.

      Kevin Graham

  2. Hi. I have a question. My parents have a “negative escrow” with their current lender wells Fargo because my mom’s property taxes were deferred due to her being disabled. But for SOME reason (unknown), they paid this even though it is deferred and she only has one year to pay off the 17000. So her mortgage payment went from 890 to 2300. Would quicken loans be able to refinance us? Thanks so much.

    1. Hi Angela:

      We can certainly help you look into your options for refinancing. Whether we can refinance you or not, we might be able to give you some advice for the escrow issue. I’m going to pass your question along to a Home Loan Expert.

      Thanks,
      Kevin Graham

  3. I am very unhappy with an escrow account. I have managed my taxes and insurance on previous property for 25+ years and Quicken determined I am no longer capable and forced me to have an escrow account. How long must I keep it before they determine I am responsible enough to take care of my own taxes and insurance? This is one of the reasons I will never recommend Quicken Loans to anyone.

    1. Hi Marie:

      We never want to hear our clients have had a less than amazing experience with us. Someone will be reaching out tomorrow to discuss your escrow account and any other concerns you might have.

      Thanks,
      Kevin Graham

  4. I chose to pay my own taxes and insurance for my primary residence and am happy I chose to do this. Because I am consistent and diligent about saving and holding the funds so I can pay these expenditures, I can negotiate or change insurance or dispute a tax assessment. Can I do this for rental property also?

    What is the lowest price home you will finance as rental property. Do you count your primary residencr into the number of rental properties you can own? Gail E.

    1. Gail:

      That’s a lot of questions. That’s good. You’ll know what you’re doing going into this. I’m going to forward your inquiries to a Home Loan Expert who should be able to answer your questions.

      Thanks,
      Kevin

  5. I am so pleased with Quicken Loans. As they say, “word of mouth travels fast”. Let me tell you I have a BIG mouth. I am trying to convince my son and everyone I know to change their mortgage to Quicken Loans.
    Here’s a great big Atta Boy and Atta Girl

    Gretchen Hale
    St. Cloud Florida

  6. This notice along with the one sent to is very vague! Why didn’t we get specific as to how and when? For ex… How will it affect individuals that have multiple payments throughout the year? When will their analysis be done? If after each tax payment, will there be a re-calibration after each analysis? Please provide more details!

  7. Am I allowed to remove my escrow account if I have one currently and if so, what is the criteria? I would like to pay my HOI and property tax separately on my own.

    1. Hi Jim!

      To answer best answer your question for your individual situation, I’ve forwarded your question to our Home Loan Experts who will be reaching out to you soon.

      Thanks for reading!

  8. I closed on my mortgage a year ago yesterday. There was a mixup about the check I wrote at closing for my hazard insurance, and it was refunded to me. I thought it was because it was coming out of my escrow account. This has resulted in my house payment going up by $72 a month for the next year. This has created a lot of stress and confusion for me. I hope you will find a solution to this that keeps people from being suddenly hit with it. Otherwise, I love my little house and Quicken has been great to me every time I’ve needed you.

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