Despite your best efforts to keep up, you may have found yourself missing payments or making late payments on your home mortgage. It's a common problem in today's economy, and many homeowners are looking for alternative methods of making their incomes meet their expenses. Loan modifications can help homeowners obtain lower payments that are more manageable. One step in loan modification is the lender requesting an escrow.
An escrow account is a sum of money accrued through your loan and used to pay taxes and insurance payments. Deposited by the borrower and managed by the lender, the escrow account exists to make necessary payments related to the property. The payments help to protect both the lender and borrower's interests. The Department of Housing and Urban Development protects borrowers by limiting the amount that lenders can hold in escrow to a reasonable amount not to exceed the amount necessary to meet two months worth of tax and insurance payments.
Job loss, income decrease, divorce, birth of a child and other changes of circumstances can be grounds for a loan modification. Lenders offer their borrowers opportunities to redeem themselves when it comes to their loans through the modification process. Like most business matters, the process includes several stages. Through assessment of your household income, analysis of your other regular expenses and a determination of the amount left on your loan, a modification usually results in loan reinstatement (if facing foreclosure), waiver of late fees, a lower interest rate and a lower payment you can afford. The loan modification is based on a new 360-month term.
During the modification process, the borrower lets you know when it's time to establish an escrow account. Rest assured, this occurs after loan modification approval; several steps remain before the process is completed, however. If your loan didn't have an escrow account previously, you're going to have to make deposits to create one. Usually, your lender will allow you some time to create the escrow account while finalizing all other paperwork for your loan modification. If you already have an escrow account, the lender will make a retroactive escrow analysis. You may need to deposit additional funds necessary to bring it up to expectations. When you receive the escrow request as part of your loan modification; the new escrow will reflect actual escrow required for those months, too.
After completing the request for escrow, hang tight. It won't be long before your modification is finalized and your paperwork is ready for your signature. While you're waiting, it's necessary to continue to make loan payments, including to an existing escrow account. Your lender will let you know what payments to make and how to make them.
- Hemera Technologies/AbleStock.com/Getty Images