When you buy a home, or just make an offer, you will encounter the term "escrow account." Like making a friendly bet and asking a third party to hold the wager money, the "escrow agent" is the neutral party that holds funds in the interest of the mortgage lender and the borrower.
When the terms of the purchase and loan agreements have been met, the money is released. When your application is approved and the loan takes effect, the lender will likely require money for property taxes and homeowner's insurance also to be held in escrow. These funds are added to your monthly mortgage payment and disbursed when the tax and insurance bills are due.
This protects the lender by ensuring a lien isn't placed against your property for non-payment of taxes, and your home (their collateral) is protected against catastrophe. But escrow also benefits borrowers by spreading the large annual payments for taxes and insurance over twelve months.
For example, if your taxes are $1,600 per year and your insurance is $800, you're budgeting a reasonable $200 per month instead of making two big payments. Escrow accounts do not earn interest, so if you make a large enough downpayment, you may be able to avoid the monthly escrow and pay the bills directly. Ask your agent and your lender about the pros and cons.
Showing posts with label mortgage lender. Show all posts
Showing posts with label mortgage lender. Show all posts
12/7/09
A Lesson For Sellers
If you've found the right home, how can you be certain you aren’t paying too much? Once you make your choice, it's quite likely you've also become well informed about property values. How is this so? Because before you made that choice, you probably looked at a variety of homes, possibly as many as six to twelve properties. That's called “comparison shopping.”
As you visited each home, you made value judgments based on size, features and amenities offered, as well as condition of the homes. Without realizing it, you compared prices, looking for the greatest value for your dollar.
Nevertheless, another aspect of your purchase further protects you from purchasing an overpriced home. Called an “appraisal,” it's a required step in the mortgage approval process. Your mortgage lender, who is putting up the majority share of the purchase price, also wants to be sure the home is not priced above the market.
Thus, the lender asks a licensed appraiser to determine the home's value for the record. If the appraised value does not at least meet the purchase price, the lender may not approve the loan or, at the very least, may ask for a higher down payment.
As the buyer, however, it's easy to spot the overpriced homes. They are the ones that have been on the market for some time - but remain unsold.
As you visited each home, you made value judgments based on size, features and amenities offered, as well as condition of the homes. Without realizing it, you compared prices, looking for the greatest value for your dollar.
Nevertheless, another aspect of your purchase further protects you from purchasing an overpriced home. Called an “appraisal,” it's a required step in the mortgage approval process. Your mortgage lender, who is putting up the majority share of the purchase price, also wants to be sure the home is not priced above the market.
Thus, the lender asks a licensed appraiser to determine the home's value for the record. If the appraised value does not at least meet the purchase price, the lender may not approve the loan or, at the very least, may ask for a higher down payment.
As the buyer, however, it's easy to spot the overpriced homes. They are the ones that have been on the market for some time - but remain unsold.
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