What's not to love about paying less cash to close your loan? It's time to take control of your escrow accounts! Pay your home owners insurance and property tax annual bills in a way that benefits your bottom line.
We live in a world of indefinite options and customizable products. Thankfully mortgages are no different and options abound! There are a large variety of loan products catered to fit all different purchases and financial scenarios. From Conventional loans to VA, FHA to USDA, Cash Flow to No Income, there is a loan product available to make a home purchase possible for wide range of buyers.
How much Cash do I need to Close?
When buying a home, one of the biggest factors - or potential issues, for many buyers is the amount of cash required at closing. Many things are paid on closing day to include the down payment, lender fees, funding fees, insurance, taxes, inspections, rate reduction points, appraisal, funding of escrow accounts and more. Unfortunately, there isn't much that can be done about most of the big ticket portions of the closing costs. They are calculated based on loan type or amount, and required as part of the transaction. Luckily, there is one large closing cost item that may be able to be adjusted - escrows!
What is an Escrow on a Mortgage?
At closing, most lenders require advance payment for a year of home owners insurance (HOI), as well as funding several months of HOI and taxes into an escrow account. When future mortgage payments are made, a monthly portion of both HOI and taxes are collected in addition to the principal and interest as part of the loan payment. These funds are and held in an escrow account for the borrower until the bills are due, which is typically once a year.
Can Escrows be Waived?
YES! Some borrowers qualify for an escrow waiver.
Waiving escrows allows borrower to directly pay the initial year of HOI and hold off on property taxes until they are due at the end of the Calendar year. Depending on your finances, how you prefer to pay bills and how you typically deal with annual payments waiving escrows can provide several benefits.
Why should I Waive Escrows?
Waiving escrows actually provides the borrower flexibility and control over the payment of reoccurring bills associated with property ownership. Initially it reduces the overall cash to close, and each consecutive year the borrow can choose how to pay when the annual HOI and property taxes are due.
1. Reduce Cash to Close
Depending on the purchase price and home location - escrows can add thousands of dollars, potentially even $8,000 or more of closing costs. Waiving escrows eliminates these additional costs from the loan closing transaction. Keep more money in your pocket or put it towards furnishing and decorating your dream home!
2. Earn More Interest
HOI and Property Taxes are due annually and are often slightly higher bills than most borrowers monthly bills - potentially between $800 and several thousand dollars. Holding on to this money until the bill is due using a high-yield savings account, will allow you to earning interest for a good portion of the year.
3. Amp up your Credit Card Rewards
If you love those credit card reward points, you know that charging high dollar expenses and immediately paying them off with cash you saved is a great way to maximize your rewards! Property Taxes and Insurance are larger bills so charging them is a great way to quickly increase your points or cash back earnings.