Replace Calculated Field into the Escrow Agreement

Aug 6th, 2022
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How to Replace Calculated Field into the Escrow Agreement

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Congratulations on the purchase of your home! Whether youve owned your home for two months or two years, were glad to have you as a customer! Virginia Housing is dedicated to working with you to ensure your success as a homeowner. This video will help you identify the purpose of your escrow account and how the annual analysis of the account will affect your monthly mortgage payment. Escrow is an account of money Virginia Housing maintains on your behalf. Funds are disbursed from the escrow account to pay your local real estate taxes, homeowners insurance (also known as hazard insurance), and (in some cases) your mortgage insurance and/or flood insurance. Under the terms of your mortgage, Virginia Housing is required to collect funds from you in order to maintain your escrow account. This ensures your escrow account has funds to pay the expenses. When you pay your mortgage each month, a portion is applied to your principal and interest. The remainder is placed into the escrow account.

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The cushion is two months of the borrowers escrow payments to the servicer or a lesser amount specified by state law or the mortgage document (net of any increases or decreases because of prior year shortages or surpluses, respectively).
How does an escrow account work? To set up your mortgage escrow account, the lender will calculate your annual tax and insurance payments, divide the amount by 12 and add the result to your monthly mortgage statement.
For example, if your property taxes are $4,800 a year, this means youll pay $1,200 into escrow to cover those taxes. This amount is calculated by dividing the $4,800 by 12 (a years worth of payments) which equals $400 a month.
An escrow agreement typically contains: The names and addresses of the buyer, seller, and escrow agent. The amount in escrow. The conditions that must be met before the escrow agent releases the funds in escrow.
The formula for calculating escrow is fairly simple. The tax and home insurance bills for the upcoming year are totaled and then divided by the number of payments per year. (If your mortgage servicer collects for a cushion, the amount needed for that cushion will be factored into the equation as well.)
Escrow account computation year is a 12-month period that a servicer establishes for the escrow account beginning with the borrowers initial payment date.
For example, say your yearly property taxes are estimated to be $3,000 and your yearly homeowners insurance, $1,200. Thats a total of $4,200 for the coming year. We divide that by 12 and theres the escrow portion of your total monthly mortgage payment: $350.
Take your monthly payment and multiply it by three to account for next months payment plus the two-month cushion. The amount you get here is the total amount the mortgage servicing company is allowed to keep in your escrow account. Take this number and compare it against the actual balance in the account.

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