So after yesterday’s escrow shortage freakout/debacle? I drove my mortgage folks crazy asking ’em questions. Yep, put on my Big Girl Panties & everythang.
The result? I may not know exactly what I’m doing, but I’m no longer completely, totally clueless. Wrote a song about it. Like to hear it? Here it go.
(Okay, not a song…but who doesn’t love In Living Color?)
Mortgage loan companies hold your loan. Duh. But they also work the numbers to make sure that there’s enough money to pay your property taxes, homeowner’s insurance, mortgage insurance (if you need it, like I do) and anything else you may need that I don’t know about. That money on hold is escrow. There’s typically a 2-month cushion of funds built in there too. But the kicker? It’s not set in stone. The mortgage companies do their best — or the good ones do, at least — to get as close to the real numbers as possible, but there are almost always fluctuations in the amount of taxes you’ll need to pay, the exact amount of homeowner’s insurance and/or mortgage insurance you’ll need, ground rent, whatevs.
In a good year, those expenses will go down, and you’ll have an overage. Say hallelujah! In a not-so-good year, those expenses will go up…and you’ll have a shortage. That shortage will need to be repaid:
* In a lump-sum
* In monthly payments throughout the next year
* In an extra mortgage payment (egads!!!)
The good news; this happens to everyone. In fact, with my digging around on the internet (slogan: Everything Is True Here), it seems that in the first year of homeownership things tend to be on the side of homeowners owing scratch to the mortgage company.
TIP: With HUD1’s being guesstimates and no other years to fall back on? A shortage should be expected the first year you own your own home. So save up a bit just in case. If you’re golden and owe next-to-nothing? Sweet; use that savings on some groovy home project, or go out and supersize that value meal.
So I figured if things ebb & flow, why not bulk up the escrow and forget about it? Not so fast, tiger. Mortgage folks can’t keep overages, they have to send it back to you at the end of the review period/year. So think of overages as a sort of tax refund from your mortgage company.
And you should probably put that overage money into your savings account for next year’s shortage. Hey, that’s just me.
As far as my homeowner’s insurance FUBAR? Yep, my homeowner’s insurance company took out $164.65, the amount they said they needed to keep my policy active (thanks to a mess-up with underwriting, who didn’t believe my house was a full rehab & also didn’t bother to request info from me. Awesome.) My agent said it was all fixed and I didn’t need to worry about it, meanwhile underwriting simply took the money from my mortgage company escrow. Assholes.
Terrence The Insurance Guy said I’d be getting a credit for the error (damn tootin’ buddy) that I could slip back into escrow. He’s also having underwriting re-compute my homeowner’s insurance. We’ll see if it’s still the amount we agreed upon (or thereabouts, I understand sometimes rates go up *slightly*). If not? Kim The Title WonderWoman said I could always find another homeowner’s insurance company and if I switch before December (when I got my old policy)? My current insurer would have to cut me a refund check that I could use to pay my new insurer, evening things out for the year. Not to shabby.
But since my shortage is over $400? There’s other stuff at work here; $256ish of other stuff. The rep at my mortgage company said it could be taxes, it could be mortgage insurance or it could be both (since those are the only other things I’ve got going out of escrow).
So…approximately $260 of an escrow shortage for this first year sucks eggs, but knowing that it will most likely go down next year is nice. I think Kim had said something about homeowner’s insurance either not being able to go up (or not typically going up) more than 2-3% per year, which is a good thing to keep in mind. There’s always the Maryland Insurance Administration for info on rates & insurance law.
What did we learn hear today kiddies? That even though your mortgage interest rate and principal won’t change (if you’ve locked in, that is), taxes and insurance can cause your monthly payments to go up.