An escrow account is for making payments toward your real estate fees like taxes and insurance. It helps make these fees more manageable through monthly installments rather than paying a large lump sum when these bills are due. There’s typically a minimum balance that must be maintained to ensure that you have enough money to pay the fees.
However, these fees can sometimes fluctuate, and when this happens, your escrow account could be short. This is called an escrow shortage. Here's a rundown of why this occurs and what you can do about it.
An escrow account breaks down the fees associated with homeownership into monthly payments. Typically, the following are included in an escrow account:
Hazard Insurance: Covers damage to your property and meant to protect the lender from their losses should damage occur. The coverage may also have personal property and liability protection.
Flood Insurance: You may be required to have flood coverage if the house is located in a flood zone.
Mortgage insurance: If your down payment was under 20%, you'll pay private mortgage insurance (PMI) until you reach at least that amount of equity. This only applies to conventional loans.
Property taxes: Also known as real estate taxes.
Ground rents: If you own your home but not the land it's sitting on, then the ground fees will be paid from your escrow account.
Special assessments: Refers to recurring fees levied by your county or other taxing authority.
Possible first-lien position charges: Any payment that could take priority over your mortgage should you default on the loan and the property needs to be sold.
An escrow shortage is when your escrow account balance falls below the minimum required level. The shortage is often due to increasing charges from any of the above items leaving you with less than the required cushion in your account.
In some cases, you may end up with an escrow deficiency. This is when your account doesn't have enough money to pay for all the escrow items, like taxes and insurance, leaving you with a negative balance. When this occurs, the lender will pay the difference on your behalf, and you'll pay the lender back, typically through one of these options:
Pay it off in full: One-time payment to the mortgage company.
Pay off over 12 months: Spread the payments out over the next year to pay it back over time.
Remember that even if you pay it in full, your monthly escrow payment will likely remain at a higher amount if the shortage was caused by a permanent tax or insurance fee increase. Thus, what you’ll pay into your escrow account will now reflect the new amounts due.
Are you new to the homebuying process? We can help! From answering questions to making it easy to apply for a loan online, we have the tools and knowledge to make your home buying process a breeze. Start your application today!
We've been helping customers afford the home of their dreams for many years and we love what we do.
Company NMLS: 1299512
111 N. Belcher Rd Suite 203A
CLEARWATER, FL 33765
Phone: (727) 388-5235
Foxx and Associates LLC strives to ensure that its services are accessible to people with disabilities. Foxx and Associates LLC has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Foxx and Associates LLC makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows foxxmortgage.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Foxx and Associates LLC accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Foxx and Associates LLC continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Foxx and Associates LLC website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Foxx and Associates LLC website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: firstname.lastname@example.org