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Escrow Question

2,858 Views | 26 Replies | Last: 5 yr ago by Jay@AgsReward.com
BoDog
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I am being told that a mortgage with less than 20% down must escrow taxes, insurance, etc. Is that true?
SteveBott
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Yes it's correct. Almost all loan programs require this with a few niche ones out there the exceptions
Rustys-Beef-o-Reeno
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I had an 80-15-5 on my first property and did not have to escrow
SteveBott
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That is because your first lien was 80%. I.e. for the first loan program you had 20% equity risk wise
Rustys-Beef-o-Reeno
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Correct
There are options if you want to put less than 20% down and not have to escrow pay pmi etc.
Ragoo
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What is the advantage to NOT escrow?
Pigtails
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Pay taxes with a credit card and get points, cash back, etc.
TXTransplant
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Ragoo said:

What is the advantage to NOT escrow?


Keep that money in your account earning interest.

Don't have to deal with your mortgage company every time your taxes and/or insurance cost goes up or down. They are quick to increase your escrow payment, but not so quick to adjust/return overages.

I do not pay my taxes with my cc because the fees that the tax assessors in Harris Co charge are too high. But I do pay my homeowners insurance with a credit card to get the points.
nonameag99
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Pigtails said:

Pay taxes with a credit card and get points, cash back, etc.
Anytime I consider this the fee from the county to process via CC is greater than the 2% cash back I get on my card

Insurance do not charge an extra fee though
SteveBott
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Yea I know after being in mortgage for over 15 years.

Ragoo some folks don't want to deal with a third party to pay their bills. Eventually the escrow account gets upside down and you are forced to fund it on an accelerated rate to catch up.

I will lay out pros and cons of two loans no PMI and one loan later. It's not a clear cut decision
SteveBott
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Earn what interest in today's market?
TXTransplant
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SteveBott said:

Earn what interest in today's market?


I've got a money market earning 1.75%. That's better than it sitting with the mortgage company earning 0%.

The downside is I have to make sure I save ~$10k over the course of the year to pay these expenses. That's not an issue for me, but I could see it being an issue for someone who is not disciplined.
Rustys-Beef-o-Reeno
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You can also move around which year you pay real estate taxes for itemizing purposes.
Ragoo
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One advantage I see is that the recurring monthly liability is much less to the mortgage company. Yes you have to budget for taxes but they could be funded by yearly bonus, or vested stock, etc. whereas escrow you have to fund from your monthly income cash flow.
HalifaxAg
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Because escrow companies pad their balance sheets by "estimating" future taxes/fees and setting your rates so that you could never dip below a zero balance with them. Their estimates are so far fetched that you question their mathematical competence. They sit on thousands of your dollars while you could be making money on it....it's the single most infuriating experience for a disciplined saver.

Took me a few years to get the 20% number when I was in my twenties, but NEVER again will I do escrow.
SteveBott
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That is the most misinformed post I have seen in a long time on this board.

There are no "escrow companies". The lenders/service companies do this this internally.

They are required by federal law to do an "escrow analysis" each year comparing the balance, estimated costs for that year and a forecast a balance to make sure the account is not upside down

They by law can pad the account with two months extra funds to cover unexpected increases in taxes or insurance or both.

If the analysis shows a surplus over estimated the cost, again by law, they refund that amount to the borrower.

The for profit company involved are the 'aggregators". The lender does not want to send individual checks to thousands of creditors so they use these companies on a contract basis. These companies make money by delayed payment earning pennies on the dollar while in control of the funds, usually around 3 weeks. But we are talking pennies on billions of dollars. they may also charge a fee per loan to the lender, but I am not sure. But that fee is not charged to your account.
SteveBott
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Quote:

I've got a money market earning 1.75%
mind sharing your bank name? I have not seen that rate in a loooong time
oldag00
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SteveBott said:

Quote:

I've got a money market earning 1.75%
mind sharing your bank name? I have not seen that rate in a loooong time
Do an online search for high rate savings account. You'll see multiple options from name brand banks offering online accounts with APY of 1.75%+.
TXTransplant
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SteveBott said:

Quote:

I've got a money market earning 1.75%
mind sharing your bank name? I have not seen that rate in a loooong time


Capital One on-line banking. I've also got a 12-month CD with them that is at 2.3% (that rate has since gone up to 2.4%)
SteveBott
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You would not put escrow money in a CD so that rate is not applicable to the needs of the money. I did find 1.75 on the net for a savings account. I'll run a break even analysis and post tomorrow
vette
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Marcus, by Goldman Sachs is currently sitting at 1.85%.
TXTransplant
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SteveBott said:

You would not put escrow money in a CD so that rate is not applicable to the needs of the money. I did find 1.75 on the net for a savings account. I'll run a break even analysis and post tomorrow


I agree, escrow money doesn't belong in a CD. I was just sharing all of their "high interest" options as an FYI.

Sigh...I remember days when my high interest savings account was earning 6%+
SteveBott
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Me too. And I advised all my clients at the time waive escrow and pay the lender fee
BoDog
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So lender fee is customary? He says now if i do not escrow there is an addl fee of .250% even with 20% down....
SteveBott
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It's a Fannie-Freddie rule. All lenders must pay it. Either st the table or raising your rate.
Wife is an Aggie
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SteveBott said:

I will lay out pros and cons of two loans no PMI and one loan later. It's not a clear cut decision
Interested in this....

I went with the two loan option for our first-home and think the pro's definitely outweigh any cons.
SteveBott
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At an appt but will break down the numbers today. This time I won't forget
Jay@AgsReward.com
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I am late to this thread but Fannie/Freddie will allow you to waive escrow up to 90%. Not many investors will allow it over 80% but we have a few that will allow up to 90%. (relatively recently for any past clients that might be reading this!) I still often recommend first time home buyers who are putting less than 20% down to have an escrow account but you would have the choice to waive if would rather. I typically eat the fee as well.
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