Escrow fees
cover the costs of preparation and transmission
of all home-purchase-related documents and
funds, and are placed in a special escrow
account by the lender. The escrow account
ensures that there is always money to pay taxes
and insurance premiums on time. A maximum
cushion of two months of escrow payments set by
the Federal Real Estate Settlement Procedures
Act.
Your monthly
mortgage payments will include 1/12th of the
total taxes and insurance bills for that year to
ensure that your escrow accounts are
replenished. If payments increase, lenders will
typically cover the difference until your
billing has been adjusted to the new rates.
Escrow fees can
range from several hundred to several thousands
of dollars, and can include:
-
Home
insurance.
-
Property
taxes.
-
Private
Mortgage Insurance (PMI) - If you are
required to pay
PMI, the standard is that
three months of PMI payments be collected
upon closing. There are also instances where PMI may be paid annually or in a lump sum at
closing.
-
Interim
Interest - Mortgage interest begins to
accrue from the day you close through to the
end of the month. That's why closing at the
end or near the end of the month can save
you money.
-
Also,
lenders typically charge between $50 and
$150 to set up these escrow accounts.
Mortgage Glossary2
