When purchasing a home with a mortgage in the tri-state area including Hagerstown, Maryland; Chambersburg, Pennsylvania; and Martinsburg, West Virginia, you’ll likely have a bunch of acronyms and new terms being thrown your way. One of those being the word “escrow”. To help give some context from the insurance side of things, we will break down the term “escrow account” during the new home buying process, and how it impacts things from the day of closing and beyond.
What is an Escrow Account?
An escrow account, maintained by your mortgage lender, is designed to hold funds for paying property taxes and homeowner’s insurance premiums. Break it down more easily, it is another bank account of yours that you do not directly have access to. The mortgage company helps manage the account by collecting “deposits” from your monthly mortgage payments and holding them in the account for costs associated directly with your home. This setup ensures that essential payments are made on time without you having to manage each bill separately.
At closing on a new home purchase, the escrow account is established and will start to build over time. Timely monthly mortgage payments makes sure the escrow account is slowly increased and held at a sustainable level.
What Expenses are Paid Out of Escrow?
The two primary expenses paid out of an escrow account are property taxes and homeowner’s insurance premiums.
- Property Taxes: They vary based on where you live in Hagerstown, Martinsburg, or Chambersburg, but they are assessed to you as the homeowner, and paid by the mortgage company. They want to make sure stay current with everything tax wise.
- Homeowner’s Insurance: This is where we come in! We invoice the mortgage company for new and renewal premiums on homeowners policies. This allows the policy to be paid in full, and allows the mortgage company to be in more direct control of the policy status. You still have 100% control on what insurance provider you use though.
Some homeowners might also pay for flood insurance or HOA fees through escrow, depending on their home’s location and community rules. Escrow accounts are NOT used to fund home projects, cover mortgage payments, or other related expenses.
Adjusting Escrow Over Time
Your lender will perform an annual escrow review to adjust the monthly amount you need to contribute. This review accounts for any changes in property taxes or insurance premiums, ensuring that enough funds are available without exceeding legal limits. This means your overall monthly mortgage payment could vary year to year, reflecting these adjustments.
Remember, the escrow account is the bank account your mortgage company controls. Their annual escrow analysis makes sure that the balance in the escrow account will be enough to cover any upcoming expenses. This means you could be assessed an escrow payment in order to get things back in balance.
The Benefits of Better Insurance Rates
In areas like Hagerstown, MD, Chambersburg, PA, and Martinsburg, WV, finding competitive homeowner’s insurance rates can lead to lower escrow payments. Lower premiums mean less money is needed in escrow for insurance, which can decrease your total monthly mortgage payment. This not only saves you money but also improves your monthly cash flow, giving you more flexibility in your budget.
It is not 100% guarantee that this will happen, but it is a good way to make sure you are managing your side of the escrow account as much as possible.
Managing Your Escrow Account
- Review Your Escrow Statement: Always check the annual statement from your lender to understand how your funds are used and ensure there are no errors.
- Shop for Insurance: Regularly compare homeowner’s insurance rates to ensure you’re getting the best deal, which can directly affect your escrow payments.
- Monitor Tax Changes: Stay informed about local property tax changes in Hagerstown, Chambersburg, and Martinsburg, as these can impact your monthly payments.
- Rebalance Escrow Account When Needed: In the event that you get a refund on property taxes (very rare), or change insurance companies and get a refund on your premiums from your old provider, it is very important to redeposit those funds back into your escrow account. This will ensure you do not have an excessive shortage in your escrow.
Takeaway
For homeowners in Hagerstown, MD, Chambersburg, PA, and Martinsburg, WV, an escrow account simplifies the management of property taxes and insurance premiums, distributing these large payments into manageable monthly amounts. Changes in escrow are bound to happen. Just make sure you are proactively doing what is suggested to prevent any major changes in your escrow amount!
Here at Younger Insurance, our commitment goes beyond the policies; we’re emotionally invested in your insurance journey. Insurance is not a buy it and forget it service. Your experience should include feeling understood, cared for, and comfortable with the coverage and policies you have. If you want to learn more about what it is like to work with us, or have questions about how lower insurance rates could impact your escrow and mortgage payment, then fill out the form below or give us a call at 240-527-2344.