Why do escrow payments change so much?

by Home Buyer
(Texas)

We purchased our first home about half a year ago. My husband and I obtained financing, and our payments were estimated to be a certain amount, including escrow payments.

We were told that the escrow amount could fluctuate a little. We proceeded with the purchase expecting the payments to be close to the figure we had already been quoted.

When we started making mortgage payments, it seemed like every few months, our escrow portion of our mortgage payment would increase. Our payments are now almost $100 more per month than they were 7 months ago. How can this be right?

I asked someone at the finance company and she just told me not to worry and that I would get the money back at the end of the year if they were taking more than the taxes and insurance premiums would be.

Why can the escrow amounts change so much so quickly? And if I’m just going to get the money back at the end of the year, why can’t they just stop increasing my monthly payments? They’re already more than I had originally budgeted for.

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ANSWER
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Hello Home Buyer in Texas;

You asked a great question. Plus you have a very good reason for asking it.

You are right about not expecting the escrow payments to increase. They should stay rather close to what your lender quoted you on the good faith estimate.

Also, at the closing, you would have very likely signed another loan application because a number of lenders require this. This also should have stated your escrow payments.

As to the reasons why they would increase. Well, I clearly remember my own experience after closing on the house I am living in now. I was quoted escrow payments based on my getting to homestead the property taxes.

After I closed, I found out that I was past the deadline to homestead my property taxes and would have to wait a whole year.

In fact I was just a few days past the deadline. I am sure the loan officer knew it, but by this time his juices were flowing because he was about to get a commission.

My payments went up $214 a month. Not what I wanted to hear. I could only hope that we would be able to stick this out and keep our home. I remember thinking this could cost us our home and our credit.

We did a no income verification loan and the loan officer stretched the stated income to make the loan work. That is exactly what caused the mortgage collapse here in the USA. Also it deflated our property values.

So, if I had to guess why this would happen to you, I would suspect the taxes first. Then I would look at the home owners insurance.

If you live in a Condo development, it could be your association dues, however I doubt they would increase by $100 a month. Maybe it is a combination of all three.

The lender figures your escrow and sometimes they favor the high side in anticipation of increased taxes and insurance. If I remember right, they can only go to 110% of your total escrows required for one year. I may be off on the percentage, but they are limited as to how much they can collect.

So I understand your pain. Try to get to the bottom of it by talking with your title company, then your lender. Your lender should have an escrow department and when you speak with them, ask them how they estimate your escrow payments.

Sadly, there is nothing you can do about it. Your only hope is to stick it out and try to make it work.

I hope this helps.

Yours truly,

Jeff Ragan