In short, after you purchase a home, your lender may establish an escrow account that acts as a savings account to pay for your property taxes and homeowners insurance each year. At closing, the lender will typically collect upfront “prepaid” payments to help ensure your account has a positive balance once you start the escrow account. Your mortgage servicer then takes a portion of your monthly mortgage payment (taxes and insurance) and holds it in the escrow account until your tax and insurance payments are due. A mortgage escrow account helps ensure you have the money to pay for property taxes and homeowners insurance when the bills arrive.
What happens to the escrow account when I sell?
If you sell your home before that year’s taxes and insurance premiums are due to be paid, you’ll likely have an account balance that should be refunded to you. Mortgage lenders typically have 20 business days to refund your escrow account, but it’s always a good idea to check with your mortgage lender to keep your refund on their radar.
If you are selling your house and planning to purchase a new house with a mortgage, we recommend having your existing escrow account balance rolled over to your new mortgage escrow account.
Final Thoughts
When you’re buying a home with a mortgage, you’ll have an escrow account automatically set up for you! Your mortgage company will be managing your account to budget for taxes and insurance premiums throughout the year to make sure you don’t fall behind on these payments when they are due! While you don’t need to worry about this account too much annually, you’ll want to make sure you know what the balance is when you sell your home.
If you have any questions about your escrow account, please reach out to our team here.
Sources:
https://www.rocketmortgage.com/learn/what-is-escrow
https://www.ramseysolutions.com/real-estate/what-is-escrow
