Mortgage Escrow Accounts, continued
Your lender is the one who decides if you will maintain an escrow account. This ensures that property taxes and hazard insurance are paid on time. Sometimes the lender has to follow government regulations concerning a mortgage escrow account. The Federal Housing Administration requires that any lenders making FHA-insured loans establish escrow accounts on those loans. The Veterans Administration also requires lenders to establish escrow accounts for the loans that they insure as well.
Conventional loans are not required to have a lender establish an escrow account. However, most conventional loan contracts contain an escrow account clause. This helps to protect the lenders’ interest in the property being held as collateral from being foreclosed on for non-payment of taxes. The lender also views an escrow account as a good budgeting tool. The property taxes and insurance payments are spread out over 12 months and then paid when due. This relieves the payor from having to come up with a lump sum payment for taxes and insurance. Taxes alone are several thousands of dollars. It is easier to pay a little per month then all at once.