Are you a homeowner who includes home insurance and property taxes in your mortgage payments? There is a greater chance of getting an escrow return when you sell your property, pay your mortgage, or refinance. Getting refunds is always exciting. Here you will learn about escrow refunds and whether you can receive them.
What are an escrow and escrow account?
When two parties engage in a financial transaction, a third party will temporarily hold an asset or money until the completion of the transaction. This legal arrangement is called an escrow. In real estate, escrow serves two main purposes:
(i) It protects the buyer’s good faith deposit. The money will go to the seller only after meeting the sale conditions.
(ii) It holds the funds for property taxes and home insurance.
Before getting into detail about escrow refunds, we will first look into escrow accounts. There are two types of escrow accounts. One of the accounts is used during the home-buying process, and the other is used throughout the life of the loan.
For taxes and insurance
If you have a mortgage, you probably pay a monthly sum covering the loan’s principal, interest, taxes, and insurance premiums. To pay your homeowners’ insurance bills and property taxes, the mortgage servicer will keep a part of your monthly mortgage payment and store it in an escrow account.
You require a minimum of 2 months’ worth of additional payments in your escrow account to ensure you have the required money in the account, which most lenders demand.
For home buying
On buying a house, an escrow account gets set up for holding the good faith deposit. Good faith deposit is the amount put down as part of the purchase agreement, which shows that the buyer has taken the purchase seriously. On completion of the purchase, the buyer can use the good faith deposit as a down payment.
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What is an escrow refund?
Based on the Real Estate Settlement Procedures Act (RESPA), if your escrow account has an amount greater than or equal to $50, you can get a refund called the escrow refund. If the balance in the escrow account is less than $500, the servicer may either return the excess to the borrower or apply it to the following year’s escrow payments.
It is based on the annual escrow account analysis you know whether there is a surplus. Once a surplus is disclosed, you will receive a refund in no more than 30 days from the analysis date.
What makes you eligible for an escrow refund?
Here are the different cases when you are eligible for an escrow refund.
- If you have paid off your mortgage and have a balance in your escrow account, you are eligible for an escrow refund.
- There are chances that you will receive an escrow refund due to the lowering of your property tax bills.
- Switching your homeowners’ insurance for a better rate might also make you eligible for an escrow refund.
- You might receive an escrow refund if you paid more than required at closing.
You can go through an escrow refund check to know how much additional funds you have in your escrow account. After the annual escrow account analysis, the loan servicer will issue the escrow refund check if you are eligible.
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What is meant by a refinance escrow refund?
Refinancing your mortgage for a better rate can lower your monthly payment, resulting in an escrow refund. You will get a refund if you refinance with a different lender. You should not expect to receive a refund from your escrow account if you refinance your mortgage with your current lender unless there has been a significant change in your property taxes or insurance. On refinancing with a new lender, your new loan servicer will create a new escrow account for you after closing your old escrow account. You will receive an escrow refund check once you close the original escrow account.
Is escrow helpful for you?
As it safeguards both parties, escrow is generally regarded as a positive part of any business transaction. As a part of the mortgage payment, escrow benefits both the lender and the buyer by guaranteeing timely payment of property taxes and homeowners’ insurance.
An escrow account can greatly relieve you when budgeting for big, yearly bills like property taxes or insurance. You won’t have to worry about unanticipated costs because your lender will put money aside monthly from your mortgage payment to cover insurance and property taxes. The loan servicer will release the surplus cash from escrow to you as a refund.
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