Two definitions of escrow
You might hear the word escrow used two different ways in conversations about real estate: escrow can sometimes mean a way to safely hold money during the homebuying process. But it can also mean that your property taxes and insurance are included in your monthly mortgage payment.
What does it mean for me?
At Zippy, this second definition is much more common, because down payments on Zippy loans are made directly to the community and are not held “in escrow” by a third party, like a title company.
When you get a home loan with Zippy, you’ll probably hear your Zippy Guide mention that your mortgage payment includes “escrow” for taxes and insurance. When you get a Zippy loan, “escrow” means that your property taxes and homeowners insurance payments are spread out over a year and included in your monthly mortgage payment. Sometimes you’ll see the full mortgage payment abbreviated as PITI. That stands for principal, interest, taxes, and insurance, so if you see PITI, you know your mortgage payment includes the escrowed taxes and insurance.
Why do I have to escrow my taxes?
Escrow protects both you, the borrower, and Zippy, the lender. You are protected because your taxes are automatically collected and paid – you know you’ll never be late on a property tax bill! And Zippy is protected because if the taxes aren’t paid, the tax man always gets their money before your loan servicer, so Zippy doesn’t have to worry about a tax lien being placed on your home.
Why do I have to escrow my insurance?
Zippy requires you to have homeowners’ insurance on your property for the life of the loan. You are responsible for making your mortgage payments, even if your home is destroyed or damaged. Homeowners insurance protects you because you can rebuild or repair your home if the worst happens. When you escrow your insurance, Zippy is protected because there is verified proof that your home is insured, and you are less likely to walk away from the loan in the event of a disaster that damages or destroys your property. Escrowing your insurance also allows you to spread your yearly premium into 12 smaller monthly payments.
What happens if taxes or insurance change from one year to the next?
Your loan servicer is required to send you an escrow statement annually that breaks down the activity on the account. They will also review your account periodically to see if there’s been extra money paid or owed by you. If they find that you have overpaid, they’ll issue you a refund or lower your payments for the next year to offset the difference. If taxes or insurance have increased and you owe money, they will request that you make a one-time payment or increase your future monthly mortgage payments to even it out.
