When is closing escrow account possible?
Answer:An escrow account is commonly used by lenders to make sure property taxes and homeowners are paid. Closing escrow account is only possible when you no longer are paying PMI. In that sense, if you are not paying PMI at all, some loans will allow you to pay taxes and insurance yourself and avoid setting funds aside for an escrow account.
Why is an escrow account used at all?
Escrow accounts are used with the purpose of saving the lender's collateral - help avoid the case when the state forecloses on the property. If a borrower does not pay taxes, the state may foreclose on the property and the lender will have lost their collateral. So, through an escrow account the lender makes sure property taxes are paid and foreclosure will not take place.
Some FHA and VA loans may require opening an escrow account as a condition to get a mortgage. With conventional mortgage loans, if you need private mortgage insurance (PMI), you will be required to open an escrow account. When you no longer need a PMI, you can close the escrow account.
Closing the escrow account is only possible after you build over 20% equity on you house. Remember to ask the lender to close your escrow when requesting PMI cancellation, if you want to make taxes and hazard insurance payments on your own.
Our advice: Be sure to ask your lender about FHA loans. FHA loans have very competitive interest rates because the loans are insured by the US Federal Government. Even if you have had serious credit problems, such as bankruptcy, it is easier to qualify for an FHA loan than a conventional loan. Also, taking an FIXED rate loan while the interest rates are still low is a smart idea. Check your eligibility here:
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Common misspellings: mortage and morgage