You should discuss with your loan officer whether or not you will be required to escrow for real estate property taxes and homeowner’s insurance as a part of your loan.
If you escrow, every month 1/12 of your taxes will be paid into an escrow account so that the tax and insurance bills can be paid on a timely basis. You will receive an initial, estimated escrow analysis at closing and again at the end of every calendar year. A surplus of money in your escrow account will be returned to you. Shortages in your escrow account must be made up by you. You can usually elect to increase your monthly payment or deposit a lump sum into your escrow account to make up the shortfall. This would occur because of increases in your tax or insurance bills.
In addition to the monthly payment of taxes and insurance, at closing an amount sufficient to meet your tax and insurance obligations will be collected. This amount will be determined by the date that the tax or insurance bill will be due minus the number of months of payments you will make before that date.
If you are escrowing for taxes and insurance and receive any tax or insurance bills at your address, it is important to forward those bills to your lender for payment. This must be done immediately to eliminate penalty and interest payments.
If you do not escrow for taxes and insurance, but elect to pay your own, you are responsible for payment of all tax and insurance bills on your property. You will sign an escrow waiver agreement at closing setting forth your agreement with the lender terms for waiving escrows. There may be a charge associated with the waiver of escrow. Your lender may require periodic proof that the tax and insurance bills are timely paid. If you become habitually late or delinquent in the payment of your tax or insurance bills, your lender may require you to establish an escrow account.
Regardless of whether or not you escrow, you are responsible for applying for any tax exemptions like senior citizen, homestead or new construction tax abatements. Your lender will not apply for these exemptions for you.