How to Set Up an Escrow Account for Property Tax & Insurance
Property taxes and insurance are compulsory payments that you must make as a homeowner. Many lenders require borrowers to open an escrow account at closing to facilitate the payment of these bills. A percentage of your monthly mortgage payment is automatically deposited into the escrow account for this purpose. Without an escrow account you will have to save the money throughout the year to pay the property taxes and insurance bill for your home. If you are not required by your lender to open an escrow account, you can still open one for your own convenience and peace of mind.
Determine how much money you must deposit into the escrow account on a monthly basis to cover your property taxes and insurance bill for the year. Divide the yearly amount by 12 to find the amount you have to deposit each month. However, some insurance companies may require quarterly or six-month payments instead of yearly payments. Call your insurance company to get the exact amount that is due each year, six months or quarter.Step 2
Contact the Department of Revenue or the appropriate local government department in your area that is in charge of property taxes for the payment due date.Step 3
Select a bank to open an escrow account. If possible, get an escrow account at a bank that offers interest on funds deposited in the account.Step 4
Make an initial deposit into the account that covers the first month's payment. In addition to the initial deposit you can also add an escrow cushion, which is extra money to cover unanticipated distribution of funds from the account. Most state laws and federal law allows borrowers to deposit an escrow cushion equal to two monthly deposits.Step 5
Set up automatic deposits of the monthly required amount into your escrow account via automatic withdrawals from your paycheck or checking account. Also set up automatic disbursements to the insurance company and the applicable tax department at the appropriate time to ensure prompt payments.
An avid technology enthusiast, Steve Gregory has been writing professionally since 2002. With more than 10 years of experience as a network administrator, Gregory holds an Information Management certificate from the University of Maryland and is pursuing MCSE certification. His work has appeared in numerous online publications, including Chron and GlobalPost.