When you purchase a new home, you will receive a LE (Loan Estimate) from your title company approximately when you will go into escrow. This LE will describe in detail the information for your escrow account; this is commonly referred to as insurance impounds and property tax. This may or may not be necessary depending on the agreement you and your lender reach. Here’s what you need to know about escrow:
Previously, home buyers would be responsible for paying their property taxes at the end of the year. However, many homeowners didn’t budget properly throughout the year and thus ran short on funding. Therefore, many lenders started asking homeowners to pay these taxes and fees throughout the course of the year as opposed to at the end of the year. The overall goal of this was to have the lender pay the fees on the borrower’s behalf each month to minimize any errors or missed payments. For their services, lenders receive interest on the escrow funds. Often, lenders will ask for anywhere from three to six months’ of property taxes to open an escrow account.