*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.
Some of the more common questions we get here at Quicken Loans® involve escrow. Even the name is confusing. What the heck does it mean?
When it comes to your mortgage, your escrow account is a fund set aside to pay your property taxes, homeowners insurance and mortgage insurance (if applicable). The goal of your escrow account is to make life more manageable by spreading out the cost of taxes and insurance over the course of the year rather than paying in one lump sum. Meanwhile, the escrow agent holds the property in trust for the third parties while the transaction is finalized.
Things get interesting, though, when your taxes and insurance premiums change. Because these fluctuate, your payment can change even if you have a fixed-rate mortgage. You can also end up with either a shortage or an overage in your account.
We like surprises, but they’re usually better when they involve birthday cake. When it comes to your escrow account, it’s better to keep things steady because changes can be tough on your budget. One way we try to help you avoid the unexpected is to give you as much information as possible. You can use the Rocket Account servicing portal to see ongoing trends in your escrow account.
We’re obsessed with finding a better way and have made changes to our escrow analysis statement in response to your feedback. We hear you loud and clear! Before you get your statement, though, let’s get you prepared with some escrow basics.
What’s Included In Your Escrow Account?
As noted above, the purpose of an escrow account is to help you budget by not having to make lump sum payments for certain recurring expenses related to your home. Your escrow account may include the following:
Property Taxes: These are the local and state real estate taxes that have to be paid on a periodic basis to your local taxing authority such as your county, city or school district.
Homeowners Insurance: This covers the cost of rebuilding or replacing your home in the event of damage. It also often includes liability coverage should an accident happen on your property. Finally, personal belongings may be covered in the event of theft up to a certain amount. This is typically an annual premium.
Mortgage Insurance: If you have less than 20% equity in a conventional loan or have an FHA or USDA loan, a monthly mortgage insurance payment (or guarantee fee for USDA) is often required. If this is the case for you, you make a monthly payment into your escrow account and your lender pays the premium.
Each individual escrow item above is divided by 12 and rounded to the nearest cent. The items are then added together to get your new monthly payment amount.
Perks Of Having An Escrow Account
The biggest benefit of having an escrow account is that these items, which would represent a significant lump sum expense if you didn’t have an account, are instead split up into 12 more manageable monthly installments.
We take care of the management of the account for you so that you never have to worry about it. You’ll always know that your taxes and insurance are paid on time.
Understanding An Escrow Analysis
At least once every year, Quicken Loans performs a review of your escrow account to ensure there are sufficient funds in your account to cover your taxes and insurance.
At that time, if there are any changes to your escrow account, we’ll let you know. The following sections will go over the timing of your analysis and possible outcomes.
When Will I Get My Escrow Analysis?
The review of your escrow account will normally depend on what state you live in. The chart below will go over when the review of your escrow account is conducted in your area as well as when you can expect to see any changes reflected in your monthly payment.
Escrow Analysis Outcomes
There are three possible outcomes to an escrow analysis.
Payment stays the same: If nothing changes about your taxes and homeowners insurance, things should continue as they were before and you should expect no changes for the next year.
Payment decreases: This is typically the result of your taxes and/or insurance premiums decreasing. If there are excess fund in the account, these are returned to you. This is sometimes referred to as an escrow overage.
Payment increases: If your property taxes or homeowners insurance have gone up in the past year, you may have a shortage in your escrow account. If you end up with a shortage, you’ll have to pay off the difference. You have a couple of options.
What Happens When There’s An Escrow Shortage?
When you have an escrow shortage, there are a couple of options that you have.
One-time payment: If you elect to do so, you can make a one-time payment toward your escrow in order to make up for any shortage. Even if you pay the shortage in full, your escrow payment may still change. Why? Most likely because your tax and or insurance have increased so the 1/12 of your escrowed item is still higher. Unfortunately, we can not ask you to pay more into your escrow account to keep your payment the same. There are several ways to pay your shortage. These include the Rocket Mortgage by Quicken Loans website or the Rocket Mortgage app. Other payment options will be available on your escrow analysis statement.
Pay over the next year: If making a lump sum payment doesn’t make sense for you, you have the option of having the shortage amount added to your escrow payment in equal monthly installments over the next year. If you take no action, this will automatically be how your shortage is handled.
How Is The Minimum Escrow Account Balance Calculated?
One of the things we talked about above is the fact that there’s a minimum escrow account balance. This is intended to prevent you from ever having an escrow deficiency by having up to 2 months’ worth of tax and insurance payments in your account based on the amounts shown in your most recent review. This would cover potential increases in your tax and insurance payment.
The minimum required escrow balance is determined in accordance with the Real Estate Settlement Procedures Act (RESPA), your mortgage contract or state law, but up to 2 months’ worth of cushion could be required.
How Is My Payment Calculated?
Your payment includes principal and interest. This escrow payment for the next year is also included, with applicable monthly amounts for property taxes, homeowners and mortgage insurance.
Keeping Track Of Your Escrow
We have a couple of features on your Rocket Account that are intended to help you keep track of your escrow information and be better prepared in the future. Let’s briefly run through these.
Escrow Information Page
The first thing we want to highlight is a new general escrow information page that’s available to our clients. This page will show you not only the payments we’re taking out of your account for both your taxes and/or insurance but also the payments we expect to make over the course of the year.
The goal of this page is to give you more insight so that if you see a change in your taxes or insurance that you’re not expecting, you can proactively contact your insurance carrier or taxing authority.
This page will also show you the date of your next escrow analysis.
Tax And Insurance Payment History
It’s great to know what you’re currently paying, but how are your tax and insurance payments trending? Wouldn’t it be great to have an idea of what you could expect to pay in the future? That’s the idea behind our tax and insurance payment history page.
The first part of this page gives you an idea of what’s been paid out of your account, who the payment was sent to and when it was made.
From your past history, we’re able to give you a look at the trend in your tax and insurance payments. This can help give you some idea of what you could expect to pay in the future.
That’s everything you need to know about an escrow analysis. If you would like to view your current escrow analysis statement or other pertinent mortgage documents, you can do so online in the Rocket Mortgage documents section.
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