During a refinance, you’ll be asked to put down a deposit for your new escrow account with your new lender

During a refinance, you’ll be asked to put down a deposit for your new escrow account with your new lender

What are escrow accounts and aggregate adjustments?

Escrow accounts, also known as impound accounts, are set up by your lender and are used to hold the money you’ll pay for property-related expenses (i.e. property taxes and homeowner’s insurance).

Your escrow deposits are outlined in Section G of your Closing Disclosure. If your closing is moved from one month into the next (closer to the due dates for future installments), you will see your escrow deposits increase by one month.

We generally include a 2-month buffer for taxes and insurance (although, in some states it’s less-check with your Closer to confirm).

Another item you’ll see in section G is the “aggregate adjustment,” which refers to any credits your lender may need to return to you. By law, lenders can’t hold more than ? of your annual tax and insurance payment in escrow. If you pay more than that amount into escrow, your lender will “adjust” that amount, and credit you back the difference.

Why are you collecting property taxes and/or homeowners insurance as a prepaid?

If property taxes are due and payable (generally if they are due within 60 days of closing or due in the same month as your first mortgage payment), they either need to be paid through your new mortgage as a prepaid charge, or paid outside of closing (with proof of payment provided). These costs are referred to as prepaids and you will see them in Section F of your Closing Disclosure.

Lenders need to ensure your homeowners insurance premium is going to be paid. If you have waived your escrow account and are on a month-to-month plan for paying your homeowners insurance, we will likely collect at least 3 months of homeowners insurance payments on your Closing Disclosure to ensure your policy is paid through your first mortgage payment.

If you’re refinancing and the policy for your homeowners insurance or your upcoming tax installment is being paid by funds from an existing escrow account, we can generally use that as sufficient proof to remove the prepaid charges from your Closing Disclosure.

What happens to the money in my original escrow account?

It takes up to 30 days after closing on your refinance to get the money back from the original escrow account. By law, lenders have 30 days Full Report to disperse the funds from the time that the loan is paid off and the account is closed.

How is my payoff calculated? (For refinance transactions only)

The payoff to your current lender includes your outstanding principal balance (this is typically the figure you’ll see on your current lender’s website, which doesn’t include other fees), interest due, miscellaneous fees, and an interest buffer of at least seven days to ensure the payoff isn’t short. Sometimes there’s a gap in processing between the time the payoff is sent to your current lender and when they actually process and apply those funds to your outstanding balance.

My spouse is not on the loan and I don’t want them liable for this loan. Why are they listed as a borrower?

Any person on the title (depending on state and local laws) is required to sign the Closing Disclosure. Although this person may be listed as “borrower” on the Closing Disclosure, this does not mean they are financially responsible for the loan. The only people financially responsible are those listed on the promissory note itself. If your spouse is not on title, they may still be required to sign some documents depending on the laws in your state.

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