If you’re a first-time buyer of real estate in Rancho Mirage, you may not fully understand the escrow process. Read on for some basic information about how escrow accounts work.
When you borrow money from a mortgage lender to buy a home, you will usually pay funds into an escrow account each month, in addition to your loan payments. When you have a mortgage, your home becomes collateral for the loan. Therefore, the lender will want to be certain that the property is properly insured in case damage or some type of accident occurs. In addition to the principal and interest your pay your lender each month, they may also collect property tax and homeowners insurance payments to ensure those bills are paid and to avoid a tax lien on your property should you neglect to pay your taxes. Many owners actually prefer to pay their lenders each month so that they are not hit with a large annual bill.
While escrow accounts are not always mandatory, if you have a loan guaranteed by the Federal Housing Administration (FHA), you must have an escrow account. Escrow accounts are also required on high-risk loans, such as those with a down payment of less than the typical amount, which is 20 percent. If yours is a conventional loan, the lender can decide whether or not to require an escrow account.
Since property taxes and insurance premiums change over time, the amount of your escrow payments may also change. Once your annual payments are made, if there is a shortage or overage in your account, you will get a refund or have to send an additional payment to make up the difference. As you can see, whether you’re buying real estate in Rancho Mirage or another part of California, escrow accounts can ensure that your investment in secure and be a convenient way to make sure all the bills associated with owning property are paid.
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