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Tax and Insurance Escrows

By Homesmsp @HomesMSP

When you own a home, you need to pay your mortgage (prinicpal and interest) and also your property taxes and homeowners insurance.  Your payment is made up of PITI (principal, interest, taxes and insurance).   You may also have mortgage insurance and association dues.

When your insurance and property taxes are due, they are paid out of the escrow account.  You will get a copy  of the bill from the county and the insurance agent, but so does your mortgage company.  Typically once a year, usually in the summer in Minnesota, your escrow account will get evaluated.  The mortgage company looks at what you paid in insurance and taxes for the previous 12 months.  They calculate what is needed and adjust your payment to cover the bills.  They are allowed to keep a two month cushion in your escrow account.  After calculating how much money you will need for the following 12 months, they send you a notice with the new payment.  You usually have a choice to make up a shortage in one payment or to spread it over 12 months.  If you have too much in your escrow account, they will send you a check.

You are responsible for paying your insurance and taxes.  Your property taxes are paid to the county you live in here in Minnesota.  Your insurance is paid to your insurance company.  If you have mortgage insurance, the lender sends the MI payment to your MI lender.  If you have an association, you will typically send your association dues to the association or a management company.

Your taxes and insurance can vary every year.  If your insurance changes to much, you can always contact your insurance agent and ask to see if the bill can be reduced or you can shop around and change insurance companies. 

You may have a choice to waive an escrow account and pay your taxes and insurance yourself.  Usually you need at least 20% down on a conventional loan in order to do this.  The risk to the lender is that you will not pay your taxes and insurance.  If you don't pay your insurance and you have storm damage to the home, you will be responsible for repairing the home yourself.  That could cost you thousands of dollars, possibly more than the home is worth in the case of a fire.  You need to make sure your home is covered at all times.

If you have an association, you need to make sure your association dues are paid on time.  Your association has the right to foreclose on you if you are not paying your association dues.

As long as you have enough money in your escrow account, you should not have any issues with your escrow account.  Your lender will make sure your taxes and insurance are paid on time!  They like to know that these bills are paid!


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