Property tax escrow account : Bad Credit Advisor

Property tax escrow account

Property tax escrow account is generally required on loans with Loan To Value of more than 80%, e.g, buying a house and putting less than 20 percent down. Having an escrow is disadvantage for borrower and basically a rip off. No matter what lender says, the bottom line is borrower gives to lender substantial amount of money to pay property tax, but he or she is still ultimately responsible for paying this tax, and if someone thinks that lender never misses or misplaces escrowed tax payment, think again. To me, having escrow is like giving a lender your money for nothing, and lender, to add insult to injury, lends it right back to you charging a nice interest.

These are things to be aware of,
- property taxes are paid in arrears and collected by the county assessor in 2 installments each year with the due dates varying by County
- borrowers will pay 1/12 of annual taxes each month together with mortgage payment, PMI and homeowners insurance
- lenders are allowed to maintain a cushion of no more than 2 month taxes in reserve
- the escrow amount collected at closing, combined with monthly escrow payments, must provide lenders with sufficient funds to pay the next bill when it arrives and leave a 2 month reserve
- when escrow account balance goes below a 2 month reserve, lenders will raise monthly payment to bring the account back to the 2 month reserve level.

Property tax escrow amount needed to close is calculated using following steps,
- annual property tax divided by 12 is equal to a monthly tax escrow payment
- monthly escrow times 2 is equal to a typical reserve requirement
- annual property tax divided by 2 is equal to installment payment amount
- installment payment plus reserve minus amount to be collected in monthly payments before due date is equal to amount lender must collect at closing
- remember that mortgage payments are made in arrears
- determine 1st and 2nd installment due dates with your county and use a monthly calendar to calculate required tax escrow amount