When you decide to buy a home, it's not surprising that you and the seller must place a lot of trust in each other. After all, the seller doesn't want you to walk away from a deal, and you don't want the seller to hide any critical information about the home you're buying. So whether you're looking to buy a home with FHA loans or with a Texas VA mortgage, you're most likely going to use an escrow account as part of any mortgage loan as a way to further the trust between you and the seller.
So what is an escrow account anyway, and how does it affect you as a homebuyer? One of the best mortgage companies Texas offers looks into escrow for first-time homebuyers.
Escrow is a legal arrangement during the home-buying process in which a third-party account temporarily holds money or property until conditions, such as the fulfillment of the purchase agreement, have been met. After you've completed the purchase of a home, your lender will establish an escrow account to pay for your taxes and insurance.
Thus, an escrow account is a "way station" for your down payment and other money you'll need during the mortgage loan process. The concept is this: when you've committed to purchasing a house, you put certain expenses into an escrow account, showing that you have that money and are serious about moving forward. However, the seller doesn't have access to that money until the process is complete.
Escrow is a third-party account that sits "between" buyers and sellers. Before you place money in an escrow account, you'll learn what circumstances return the money to you, such as the deal falling through, and which events disburse that money to the seller.
In addition, the best mortgage companies Texas has available want to know that you have the money to pay the required down payment and closing costs before they issue a mortgage loan to you. Once the loan is issued, escrow remains a valid account. In many cases, a mortgage lender or servicer will have you pay one monthly mortgage payment, and they'll pull the correct amount from each monthly payment into an escrow account to pay for your property taxes and homeowners insurance.
Operating with an escrow account saves buyers from having to come up with considerable lump sums when these yearly or bi-yearly bills come up or pay multiple companies during the year.
FHA loans and Texas VA mortgages require escrow accounts under many circumstances, and Texas United Mortgage can get you set up with the escrow accounts you need. While there are fees associated with escrow accounts, they are typically assessed as part of a broader list of closing costs. The right home loan lenders can help you understand each of those line items.
Because both FHA and VA loans typically have lower mandatory down payments than conventional loans, escrow provides a valuable reduction of risk. Texas United Mortgage group wants to know that you'll have the money saved that you need to pay property taxes and homeowners insurance bills so that you aren't in any financial jeopardy at the end of the year.
Escrow accounts, after the mortgage loan goes through, can seem like they make your monthly bills higher. However, in many ways, they simplify your financial life. Rather than tracking your expenses to pay the mortgage, then also allocating a little bit of money each month toward insurance costs or property taxes, you pay one consolidated payment. Then, your FHA-approved lender or VA loan underwriter distributes funds as needed on their end. As a result, your bills get paid, and you don't have to think about it!
Escrow can also mean that your monthly mortgage payment changes slightly from year to year since insurance rates can change and property taxes can go up. Again, these changes shouldn't be massive since any increase is divided out over 12 months, which makes it much easier to handle the price bump than if you were handling it yourself.
When it comes to the mortgage loan origination itself, escrow helps everyone involved in the process trust each other. It's one thing to say that you have thousands of dollars available. However, when you place that money in an account where independent loan officers or an agent can verify that the money is there and available for the transaction, it helps boost the confidence of both your seller and the lender.
Third-party accounts help big purchases like a home sale happen in a way that boosts confidence for all parties involved. Mortgage lenders know that the money won't be spent before the sale goes through, jeopardizing their investment in a mortgage loan. Likewise, a buyer knows that their money hasn't been handed over to the seller until the deal is finished and the home is theirs. If you have questions about escrow or about getting preapproved for an FHA loan, VA loans, or conventional home loans, Texas United Mortgage is here! We help first-time homebuyers walk through the loan application process, learn about down payment assistance programs, and prepare for the true costs of homeownership.
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