Understanding Escrow

• Property taxes and insurance costs must be collected and paid when they are due.
  
  In most cases, lenders will make the collection by allocating each month to your mortgage payment the amount you need to pay for taxes and insurance.
  
  
  
• These collections are placed in escrow, a depository account that the bank manages.
  
  Your total monthly payment will include payments for real estate taxes, insurance, and Private Mortgage Insurance (PMI) and other items that are placed in escrow and used to pay taxes, insurance, PMI and other items on your behalf when they come due.
  
  
  
• Note that the escrow portion of your monthly payment may increase or decrease,
  
  depending on the change of your taxes and insurance assessments.
  
  If your mortgage does not have an escrow account, you will be required to pay your taxes and insurance separately and show proof of payment to your lender.

Local Property Taxes

• Your county and city may levy taxes on your property.
  
  These taxes pay for government services such as schools, roads, police, and other community services.
  

  Information on property tax use:
  http://www.freeadvice.com/law/591us.htm

• The annual tax is usually calculated as a percentage (factor) of your property's appraised market value.
  
  For example, an assessment may look like this:
  

$0.94 per $100 in appraised value

this calculates into a tax factor of 0.94% on the appraised value of your home

Contact your local community and county officials to determine your county and city tax factor.

Lookup county and city governments:
http://www.statelocalgov.net

• Many of these local real estate taxes may qualify for tax deductions.
  
  Check with your tax advisor for more information.
  
  Deductibility of real estate taxes:
  http://www.irs.gov/formspubs/...
  
  Publication 530: Tax Information for First-Time Homeowners:
  http://www.irs.gov/formspubs/...
  
  Download Publication 530:
  http://www.irs.gov/pub/irs-pdf/p530.pdf
  
  Download IRS1040, Schedule A: Itemized Deductions:
  http://www.irs.gov/pub/irs-pdf/i1040sa.pdf

• At your home closing, you will be required to prepay up to one year's cost of your property tax.
  
  Then each month, your loan payment will include 1/12 of the annual property tax that will be deposited in your escrow account until the property tax payment is due.
  
  
  Estimate your tax payments:
  your input will be used to calculate your monthly escrow below
  

Hazardous Insurance

• You may be required to carry hazardous insurance on your home
  
  in the event of a fire, flood, disaster, and any other natural disaster that destroys or partially destroys your home.
  
  The insurance will protect your investment (and the lender's) and repair any damage that may occur. The annual premium may vary depending on your home area and location. You must provide proof of insurance before closing and settlement.
  
  Looking for hazard insurance for your home?
  
  Analyze insurance companies:
  http://www.ambest.com/
  Receive home insurance quote:
  https://secure1.insweb.com/cgi-bin/homeowners.exe
  
  another insurance quote listing:
  http://www.netquote.com/
  
  
  

• At your closing, you may be required to prepay up to one year's cost of hazardous insurance.
  
  Then each month your loan payment will include 1/12 of the annual hazard insurance premium to be deposited in your escrow account until payment is due.
  
  
  Estimate your insurance costs:
  input will be used to calculate your total monthly payment below:

Other Costs (PMI)

• There may be other associated costs that may be included in your escrow payment such as Private Mortgage Insurance, tax liens if any, etc. Check with your real estate agent or your legal council to determine what other charges may apply.
  
  
  

What About Private Mortgage Insurance Costs (PMI):

• Private Mortgage Insurance (PMI) is mortgage default insurance that is required for all conventional mortgage loans with less than a 20% down payment.
  
  It is designed to pay the lender a portion of the outstanding balance of a loan in the event the homeowner defaults.
  
  for more information about PMI: about PMI
  
  If PMI is required as part of your loan, the initial annual premium will be included in your closing costs while your subsequent premiums (1/12th of your annual premium) will be included in your monthly mortgage payments and deposited in your escrow account.
  
  You need to check with your lender to estimate your cost percentage for PMI if your down payment is less than 20%. Nationally, the average annual percentage is around 0.005 of your loan balance.
  
  
  Estimate your PMI costs, if any:
  input will be used to calculate your total monthly payment below

Estimating Your Total Mortgage Cost

• You can use the table below to estimate your total mortgage cost.
  
  Your monthly mortgage and escrow payment will be the total cost each month for your home purchase.