Escrow Accounts and Buying a Home in North Texas

When you take out a mortgage loan, there will be many fees and costs associated with your loan agreement. One of the costs that you will have to pay as part of your monthly house payment is a payment to your escrow account. By learning more about the escrow account and how it works, you will be better prepared to take on this additional payment.

What is Escrow?

An escrow is a deposit of funds that you make to a third party in order to pay another party. When you take out a mortgage loan, for example, your lender will require you to set up an escrow account with to ensure your homeowner’s insurance and taxes are paid in a timely manner. As such, an escrow payment will be included in your monthly home payment. This payment is added to your monthly principal and interest costs. The lender will then use the escrow money to pay your taxes and homeowner’s insurance on your behalf.

Why Do I Have to Put Money in Escrow When Making an Offer on a House?

When making an offer on a house, you will be asked to make a deposit of money into an escrow account. This money is referred to as earnest money and is used to demonstrate that you are serious about purchasing the home. While the money is in escrow, neither you nor the homeowner can access the money. If the seller accepts your offer, the earnest money will be released to the seller as part of the amount that you agreed upon. If the seller does not accept the offer or if the deal otherwise is not complete, you receive the money back.

Why Do Lenders Require Escrow Accounts as Part of the Mortgage Loan Agreement?

As a homeowner, you risk losing your home if you fail to pay your taxes and homeowner’s insurance. If you do not pay your insurance, your property can be seized by state and local authorities. If you do not pay your homeowner’s insurance and your home is destroyed by a fire or natural disaster, you will not be reimbursed for your loss. Obviously, you do not want this to happen because it will result in a significant loss of your money. Since your lender gave you the money to purchase the home, the lender also has a vested interest in ensuring your home is protected. By collecting money from you and paying your taxes and insurance on your behalf, the lender is guaranteed these expenses are paid.

What Happens to the Money if Escrow Payments are Too High?

Since your taxes and insurance payments are estimated by the lender, you may end up paying more throughout the year in escrow toward these expenses than they actually cost. In this case, the lender will typically offer to either send you a check for the difference or may apply it to future loan payments. On the other hand, if these costs were underestimated, you will either have to pay the difference or you will have the additional costs added to your monthly mortgage payment.

If you are interested in purchasing a home in North Texas, contact our team of knowledgeable and experienced real estate agents. We will be happy to help you find a Flower Mound home to suit your lifestyle and budget.

Check out these Flower Mound homes priced from $450,000 to $550,000