Escrow Analysis
Definition and meaning of Escrow Analysis in real estate.
An escrow analysis is a periodic review conducted by a mortgage lender to ensure that the borrower's escrow account has the correct amount of funds to cover upcoming property taxes and insurance.
In more detail
Lenders typically perform this review once a year to compare the money collected from the borrower with the actual bills paid for taxes and insurance. If property taxes or insurance premiums increased over the year, the account might have a shortage. In contrast, if those bills decreased, the account will have a surplus.
Lenders are required to send the borrower a statement summarizing the account activity and outlining any adjustment to their monthly payment.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Typical frequency | Once per year |
| Regulated by | The Real Estate Settlement Procedures Act, which limits the cushion a lender can hold |
| Result | Can cause a monthly mortgage payment to increase or decrease |
A lender conducts an annual escrow analysis and finds that the county property taxes increased, resulting in a shortage in the homeowner's account. The lender adjusts the homeowner's monthly payment upward to cover the new tax rate and recover the shortage.
Frequently asked questions
What happens if my escrow analysis shows a surplus?
If the surplus is above a certain amount, typically fifty dollars, the lender will send the homeowner a refund check or apply the funds to future payments.
Can I pay an escrow shortage in a lump sum?
Yes, most lenders give borrowers the option to pay the entire shortage at once to keep their monthly mortgage payment from rising as much.