Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Escrow Refund
When you get a mortgage from a lender to buy a home, your lender will require you to open an escrow account to hold your property taxes and homeowner’s insurance amount to be paid when it is due.
In most cases, the property taxes are paid annually at the end of the year when your lender does something called escrow analysis.
This will help them understand if the money accumulated in the escrow account is enough to pay their property taxes and home insurance. But what happens if you have overpaid into your escrow account?
Although the possibility is rare, you would receive an escrow refund check from your lender. In this post, we will understand what is an escrow refund in detail.
What Is An Escrow Account?
Before we understand how the refund of the escrow amount works let us understand what an escrow account is.
When you are buying a home, there are two types of escrow accounts that are created.
The first account is opened by a third-party title company that holds the earnest money deposit that you pay to the seller to show your seriousness in buying the property.
This money will be adjusted towards your closing costs or the down payment that you are supposed to make to purchase the property during the closing.
The second escrow account will be opened by your lender. In this escrow account, the lender will accumulate your property taxes and homeowner’s insurance every month and pay them to the right party when they are due.
As a borrower, you will be making payments on your mortgage to the lender every month which will include your principal amount, interest amount, property taxes, and homeowners insurance.
The interest and principal amount will be going towards the repayment of your mortgage, the property taxes will go to your county appraisal district and the HOI premium will go to your home insurance company.
What Is An Escrow Refund?
Escrow refunds occur when you have excess funds in your escrow account and receive a check for your balance from your lender.
It is important to note that escrow refunds are not available unless the balance is at least $50.
If the surplus in the escrow account is less than $50 per year the escrow account analysis, the lender servicing your loan may repay the excess amount.
However, instead of a refund, the lender may also choose to apply the access amount toward next year’s escrows.
If there is a surplus in the escrow account after the loan is repaid, a refund would be initiated for the remaining amount.
When Are You Eligible To Receive An Escrow Refund Check?
Escrow returns can occur in a variety of situations. The details will depend on your specific circumstances, but here are some common situations where escrow returns are possible:
Mortgage Payment in Full: If you have an outstanding balance in your escrow account after your mortgage is paid off, you may be eligible for an escrow refund for the remaining balance.
The lender must repay the remaining balance in the escrow account within 20 days of the full repayment of the mortgage loan.
Low tax bills: Your tax bills may vary from year to year. If your property tax assessment is reduced, you may be eligible for this refund.
Overpayment on EMD: If the buyer has paid more than the required amount as an earnest money deposit, he or she is eligible to receive the refund from that escrow account once the account is closed at closing.
Change In Home Insurance Premium: In many cases, the buyer changes their insurance company to get lower premiums that could help them save money on their monthly expenses.
In such case, the lender needs to be intimated and the access amount that you have paid to the lender for your insurance would be refunded.
Mortgage Refinance: If you are refinancing your mortgage with a new lender, your old escrow account will be closed and you will receive a refund.
The new lender that you are refinancing with will open a new escrow account and will require two months’ reserves to avoid any shortfall.
Conclusion
It is exciting to know if you are receiving a refund as a homeowner. Escrow refunds are initiated only when you have access to funds in your escrow account in a financial year.
Every lender may have a different refund policy. If you are not sure about yours, get in touch with your lender to know their terms of refund and make sure that you keep an eye on your escrow balance which could be found on your monthly mortgage statements.
