FHA Escrow Account
When purchasing a home you have the option of paying your taxes and insurance yourself, or, you can have the bank or lending institution that holds the loan take the money every month and put it aside in an escrow account.
The lender has a stake in making sure these bills are paid. Because they have lent you money, they are a part owner of the house. If the house is damaged or destroyed they want to know the insurance has been paid. Similarly, taxes on the home must be paid, if not the local municipality can take the home from you to satisfy your tax debt. It is easy to see why the bank would want to make sure they have these bills covered. There is no charge to do this for, and it can be part of your monthly payment.
Should I have the bank escrow?
It is really a personal decision, there really is no right answer here. There is no greater cost, and if you like to limit the number of large bills that are due one or two times a year, this is a good option. Most people “settle in” to a payment and begin to simply pay the bill.
Should I pay the taxes and insurance myself?
If you like control, and don’t mind the one or two large yearly bills, this is a good option. The banks can only estimate what these payments will be, and sometimes can be wrong. The can over or under estimate, giving you back money that you would already have if you paid the bills yourself, or ask you for more money per month if they under estimated the bill.
One thing for sure with payments of insurance and taxes and that is they will change. Your taxes are based upon the value of your home, which seldom stays constant over time. Insurance premiums and costs fluctuate as well.