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What is an Escrow Account?

Key takeaway

An escrow account is funded each month as part of your total monthly payment. Lenders use it to make property tax and insurance payments for you. Items like mortgage insurance and flood insurance may also get paid from the account.

A closer look at escrow accounts

An escrow account is an easy way to manage property taxes and insurance premiums for your home. You don’t have to save for them separately because you make one monthly payment where:

  • Part goes toward your mortgage to pay your principal and interest.
  • The other part goes into your escrow account for property taxes and insurance premiums (like homeowners insurance, mortgage insurance, or flood insurance).

When those bills are due, we use the funds in your escrow account to pay them.

What is an escrow account?

This short video explains the basics of escrow accounts and how they make managing your home’s expenses easy and effortless.

Transcript: What is an escrow account

 

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True or false?

Escrow is an easy way to manage property taxes and insurance premiums for your home.

Stick around to find out. The answer might surprise you.

Welcome to the basics of escrow. Since you're here, chances are you own a home and have an escrow account or you're looking to buy a home and you just want more information about what an escrow account actually is.

Either way, we can help you understand it. Escrow plays an important role in your mortgage. Let's explore the basics together.

When you own a home, you're responsible for additional home-related expenses like property taxes and insurance. Escrow accounts help you plan for those payments and make sure you have the money set aside for them so you don't have to think about it.

An escrow account is one you fund each month, and we use to pay for these items on your behalf when they're due. Here's how they work.

When you make your total monthly payment, part of it goes toward your mortgage to pay your principal and interest, and another part goes into your escrow account to pay your taxes, homeowners insurance, and other expenses you might have when owning a home, like mortgage insurance and flood insurance.

Each payment you make adds to your escrow account.

Then, when your taxes and insurance are due throughout the year, we withdraw funds from your escrow and use them to pay the bills for you.

So, back to our original question, the answer is 'true'. Escrow is an easy way to manage property taxes and insurance premiums for your home because you don't have to save for them separately.

You're setting aside money for them every month, which is often easier than trying to find the money for lump-sum payments throughout the year. Plus, when these bills are due, they're paid on your behalf.

There you have it. Those are the basics. If you have any questions, we're here for you. Give us a call at 1-800-357-6675. Or, you can check out our other videos to learn more about your mortgage.

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. 
© 2015 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801. Equal Housing Lender.

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How is my escrow payment calculated?

Lenders estimate how much your taxes and insurance will cost over the next 12 months, based on your loan closing documents, taxing authority, and insurance company. That estimate is then divided by 12 and added to your monthly mortgage payment. Watch this short video to learn more.

Transcript: How is escrow calculated?

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Wondering how we determine the amount you'll pay into escrow? You've come to the right place! Here's how we do it.

When you close on your mortgage, your escrow account is set up, and we calculate three things for it: property taxes, insurance premiums for your home, and the minimum balance you need to keep in your account.

How do we get those amounts?

First, we estimate the amount you'll owe for your property taxes, homeowners insurance and other expenses you might have, like mortgage insurance and flood insurance, over the next 12 months. We get this number from your loan closing documents, local property tax office and insurance company.

For example, say your yearly property taxes are estimated to be $3,000 and your yearly homeowners insurance, $1,200. That's a total of $4,200 for the coming year. We divide that by 12 and there's the escrow portion of your total monthly mortgage payment: $350.

Then, we add that to the mortgage portion so you have one combined payment where part of it goes toward your mortgage principal and interest and the other part goes into your escrow account to pay your property taxes and insurance premiums for your home. This way you're setting aside money for escrow each time you make your monthly mortgage payment.

Next, we calculate your minimum balance. Did you know that even if you have a fixed rate mortgage, your total payment can change from year to year? This is because property tax amounts and insurance premiums for your home can, and often do, change year after year.

To help you plan for any potential increases, a minimum balance needs to be kept in your account at all times. It can be up to two months of escrow payments.

We'll keep you updated and let you know about any changes to these amounts when we review your escrow account each year.

Now you know how we determine your escrow amount. If you have any questions, we're here for you. Give us a call at 1-800-357-6675. Or, you can check out our other videos to learn more about your mortgage.

Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. 
© 2015 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801. Equal Housing Lender.

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