Escrows

Escrow is an account you keep to pay taxes and insurance on the home. In most cases a mortgage company, bank, or lender  will require you to open an escrow account if you are borrowing over 80% of the purchase price.  The lender wants to make sure you are always paying your taxes and insurance. If you happened to go into foreclosure they don't want to owe back taxes too.  Or if your house burnt down they want to make sure your house was insured and can be rebuilt.  They want a property that is worth what they loaned on it. 

For a first time home owner I recommend a escrow account.  It is a forced savings for your taxes and insurance.  The lender collects 1/12 of the money needed for the taxes each month and 1/12 of the money needed for your home owners insurance each month.  The lender basically is setting up a savings account  so that when the taxes and insurance come due next year that you have enough money in your escrow account to pay them in full.  This is part of your mortgage payment. This money is then used to pay your taxes and insurance when they are due. 

The lender has a formula that they have to use to keep the minimum amount of money in the account.  So they are not just taking your money.  They have it figured out on how much is needed to open your escrow account so you have enough money to pay the taxes when they are due.  Remember they may have to pay the taxes in six months and they would only collect 6/12 of the taxes (6 months of 1/12).  The lender would have figured out that you need to deposit 6/12 of the taxes to start to make sure you have enough to pay your taxes. 

I sometimes hear that I don't want my taxes and insurance included in the payment because "my payment is too high".  If you can't afford an escrow account you should not be buying that home.  You have to pay the taxes and insurance.  If you can't pay them monthly how are you going to pay a large lump sum?  I see people time and time again having to refinance because they need to pay the taxes.

If you are borrowing less than 80% of the purchase price of the home then you have the option of having an escrow account or not.  Lenders and bank charge you .25% not to have an escrow account.  Ask your lender if there is a fee and what it is.  It may affect your rate.  It may be better to have an escrow account.

Whether it is a Wayne County Home, Livingston County Home, Washtenaw County Home, Oakland County home it is in your best interest as a first time home buyer to have an mortgage escrow account.
 
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