If you are one of those people that has paid into escrow after purchasing a home, you may be wondering, "Can I use escrow to pay my house payment?" Understanding how escrow works is very important in determining if and how you will be able to use escrow for your home.
In order to get the answer to the question "Can I use escrow to pay my house payment," you have to understand the fundamentals of escrow. Escrow is money that homeowners are required to set aside for payments for such items as property tax and insurance paid by a third party, which in this case would be a mortgage company or servicer. Typically, when you close on a loan to buy a house, you will need to put a set amount of money in escrow. You will also need to make payments toward that escrow account as part of your monthly mortgage payments.
The Purpose of Escrow
Escrow is required by most lenders because lenders want to minimize their risk. The escrow account protects the lender from the loss of the home due the failure to pay property taxes or the total loss of a home due to a lack of insurance. However, the Real Estate Settlement Procedures Act of 1974 limits the amount of money that a lender can require you to keep in escrow, and mandates that you must receive an annual statement of funds kept in your escrow account.
Who Manages the Escrow Account?
Escrow is handled by an independent party so that there is no conflict of interest between you, the escrow company and the lender. While most of the money is used to pay for property taxes and insurance -which is the reason escrow is required on many loans in the first place- at times the amount in escrow may be in excess of what is needed to pay for such services. For this reason, it is important to know how and if these funds can be accessed for personal use.
Accessing Escrow for Personal Use
If you are wondering if you can use escrow to pay your house payment then you are probably aware that this involves the use of escrow for personal expenses that are usually not within the purpose of the escrow. Most escrow companies will not simply allow you to tap into the excess money that is within an escrow account to pay house payments. The money is held by the company as a protective measure to ensure that property taxes and insurance will be paid in a timely manner, not for you to use to make your mortgage payments.
Knowing that the original purpose of the escrow is to handle the payment of homeowner related expenses, you may be wondering if you can ever access any excess funds to pay your mortgage. In most cases, if you are permitted to do this at all, it will involve closing the account, after which the escrow company will reimburse you the amount that is currently held in escrow.
Depending on the terms of the loan, you may be able to actually make this request to have the escrow account closed. However, it is advised that you review your escrow documentation to see if closing the account is an option, and to see if there are any fees associated with closing an escrow account. Not all lenders permit you to close the account, and most charge you a fee to close the account or to waive escrow in the first place.
Should you decide to close the account in order to have access to the funds, you should also make sure that your property taxes and house insurance are paid for to avoid any issues.
Can I Use Escrow to Pay My House Payment?
If you have decided to cash out your escrow, and your lender permits you to do this, then you can use the money as you please including using the money to make your house payments.