Escrows (Reserves)

Mortgaged properties have the on-going liabilities of property taxes, homeowners' insurance and, if required, mortgage insurance and flood insurance. At closing, funds are collected to set-up the escrow accounts for these items.

When the mortgage payments begin, 1/12th the annual property taxes and insurances are collected in each payment. These funds are added to the escrow amounts collected at closing to pay the escrow liabilities as they become due.

Hazard (Homeowners') insurance premium escrow:
A pro-rata monthly amount of the homeowners' insurance policy. Usually between one and two months of the total policy amount is collected at closing to insure that enough money will be in the escrow account to pay for the policy's renewal.

Mortgage insurance premium escrow:
A pro-rata monthly amount of the mortgage insurance premium (PMI). Some PMI policies will require between one and two months of the policy renewal rate to be collected at closing to insure that enough funds are in the escrow account to renew the policy when due.

Property tax escrow:
A pro-rata monthly amount of the total property taxes. Property taxes are prorated for the tax year and divided between amounts due from the seller and from the buyer. Taxes collected at closing are to insure that enough funds will be in the escrow account to pay property taxes when due.

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Closing Costs Prepaids Escrows Title Charges Other Costs

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