An escrow analysis shortage occurs when there aren’t enough funds in your escrow account to cover the projected expenses, such as property taxes or homeowners insurance.
This can happen for several reasons, such as an increase in property taxes, insurance premiums, or miscalculations during the prior year’s escrow analysis.
When an escrow shortage is identified during the annual review, the mortgage servicer typically gives the homeowner a few options:
1. Pay the Shortage in Full:
- You can make a lump sum payment to cover the shortage. This ensures that your escrow account is fully funded and your monthly mortgage payment remains unchanged.
2. Spread the Shortage Over 12 Months:
- The shortage amount can be divided and added to your monthly mortgage payment over the next 12 months. This option increases your monthly payment but allows you to pay the shortage gradually.
3. Combination of Lump Sum and Monthly Payments:
- Some servicers may allow you to partially pay the shortage and then add the remaining balance to your monthly payments.
Why Escrow Shortages Occur:
- Increased Property Taxes: If your property value rises or your local tax rate increases, your tax bill may be higher than anticipated.
- Higher Insurance Premiums: Increases in your homeowners or mortgage insurance premiums can cause an escrow shortage.
- Prior Year Miscalculations: The mortgage servicer may have underestimated the amount needed in the previous year’s escrow analysis.
Avoiding Future Escrow Shortages:
- Keep an eye on property tax rates and insurance premiums so you’re aware of potential increases.
- Review your escrow statements carefully and, if possible, set aside extra funds in case expenses rise in the future.
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