There are many details to a home purchase. Some details get much more attention and are well known by most people, but there are many details that are not as widely known, yet important, and they can get overlooked. Like Escrow.
What Are Escrow Payments and How Do They Work When You Purchase a House in Philadelphia?
Escrow Payments/Escrow Account
An escrow account is one set up by your lender after signing your mortgage paperwork. It is set up so the lender can make payments on your behalf for property taxes, homeowner’s insurance, and private mortgage insurance (if need be). This makes paying for your home a little bit easier. Instead of making three or four separate payments for the cost of your home, you make one to your mortgage lender/processor, and they handle getting the rest of the money where it needs to go. This money is collected from you in addition to the mortgage principal and interest payment you make to pay your loan back. Your escrow payment can fluctuate depending on the current property tax rate for your home or if your insurance costs change.
Details on How Escrow Increases Mortgage Bills
When purchasing a home, no one will tell you that your monthly home payments can increase. The lender often focuses on what your monthly mortgage loan payment will be. It is important to pay attention to the escrow payment. While your actual loan payment does not increase, your monthly bill can change. For example, one thing that is impacting many homebuyers across the country right now is an increase in property taxes. In some locations, the increase has been so significant that monthly bills from lenders have increased by several hundreds of dollars. This has been unexpected for some homeowners, and they find their monthly house payment to be just out of their affordable reach.
It is not the mortgage amount that has increased on their monthly bill; it is their escrow payment. The property tax rate has increased for their home, and the lender now needs to ask you for more money to cover those costs. That money will be charged on your monthly mortgage bill. It is crucial for homeowners and buyers to be aware of this possibility.
How Can A Rising Escrow Payment Impact Homeownership in Philadelphia?
It is incredibly important for homeowners and buyers to be knowledgeable about the possibility of escrow payments increasing their mortgage bill. Not being prepared for this can mean not being able to pay your bill. Buyers want to make sure they leave plenty of room to afford cost increases when signing and agreeing to a mortgage payment. It is not a great strategy to take on a mortgage bill that will require every bit of free income you have. It does not give you room to pay other bills or to account for increasing escrow payments. It is always wise to purchase a home that is only one-quarter to one-third of your monthly income after taxes. This helps you to adjust for increased homeownership costs.
Not paying your property taxes can lead to a lien being placed on your home. If not paid for several months, it could lead to foreclosure on the property so that the money owed can be paid back. Realizing that the cost of property taxes can increase is crucial to affording your home and retaining ownership.
Making sure you know all of the important details of owning a home will help you to find the Philadelphia home you love within a comfortable, affordable budget and will help you to continue building your wealth portfolio while enjoying your home for as long as possible.
If you are ready to begin searching for homes in Philadelphia, I am happy to help. I am the team at Victory Real Estateis highly experienced. We are a boutique Philadelphia real estate agency dedicated to the specific needs of every client.
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