When someone is looking at purchasing a home, they usually focus on the purchase price of the home and the potential monthly payment. At the same time, there are other costs that need to be included as well. This includes home insurance and real estate taxes.
As a result, many homeowners find themselves asking if they should use an escrow account or not. What do homeowners need to think about and how can they make the right decision?
What Is An Escrow Account?
First, it is important to define an escrow account. An escrow account is an account that contains money for items such as insurance and taxes. That way, homeowners are not blindsided by a major bill at the end of the year. Some people may be required by the lender to have an escrow account, but those who are putting 20 percent down may have an option to use an escrow account or to handle this on their own. With an escrow account, the money that is required for real estate taxes and homeowners’ insurance is broken up into 12 months. That way, homeowners can pay a little bit every month instead of paying it all at once, when the money might get tight. When should homeowners use an escrow account?
Savings Habits And Risks
First, some homeowners would rather handle real estate taxes and home insurance on their own because they want to be in control of their finances. While this is fine, some lenders might see this as an increased risk. If they view that homeowner as a risk, then they could use this as an excuse to raise the rate on the loan. Homeowners need to make sure they do not have to pay more for the loan simply because they are not using an escrow account.
Next, homeowners also need to think about their individual saving habits. Because home insurance and real estate taxes are often paid as one lump sum, this could be a lot of money leaving the account at once. If homeowners do not have appropriate saving habits, they might not set this money aside when the payment is due. If they fall behind on their real estate taxes, they could place themselves at risk of losing the home.
If you are planning on purchasing a home in the near future, you need to make sure you have enough money saved up. While there are a lot of expenses that go along with purchasing a home, the biggest expense is the down payment.
Right now, mortgage rates have fallen to rates that haven’t been seen in years. This opens the door for many people to apply for a mortgage that they previously may not have been able to afford. Sadly, not everyone who applies for a mortgage is going to be approved. There are a few steps that applicants can take to increase their chances of getting their mortgage application approved.
For those who are looking to buy a home, they know that this is one of the most exciting experiences in the world. There is something special that comes with looking at a bunch of homes and envisioning a life there. On the other hand, the prospect of saving 20 percent of the home’s value to put down might seem overwhelming. Fortunately, there are a few creative ways that people can save up enough money to purchase their starter dream home.