Tax Escrow Reserve Chart For Home Purchases In Hamilton, Warren, Butler And Clermont County

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With purchase activity reaching fever pitch in Cincinnati, and escrow withholdings reaching its high point for the year, let's take a look at what it means to "escrow", and how it hits your bottom-line.

Let's Define "Escrow Your Taxes"

First, let's answer the question "What does it mean to pay taxes in escrow?"

Paying taxes in escrow is a two-sided agreement between homeowner and lender:

1. Homeowner pays 1/12 of his annual real estate tax bill to the lender each month
2. Lender holds the homeowner's payments in a reserve account, and pays the home's real estate taxes when they come due

Typically, lenders prefer that homeowners escrow their taxes because it all but guarantees that the home's real estate tax bill gets paid on-time and in-full.  A homeowner that escrows can't "skip out" on his tax bills or choose to let the payments lapse -- a situation that could result in foreclosure.

As such, it's common for lenders to penalize homeowners that don't escrow. "Waiving escrows" can add closing costs to your settlement statement of up to 0.500 percent of the amount borrowed, or $500 per $100,000 borrowed.

Fees for waiving escrows vary by lender.

Getting Money Into Escrow At Closing

Seeding an escrow account can be costly, too, depending on the time of year.  In Southeastern Ohio, we're entering the Expensive Season.

In Hamilton, Warren, Butler and Clermont counties, up to 8 months of tax reserves are required for mortgages closing in the months of May and June, and also in November and December.

The 8 months of reserves are broken up into two parts:

1. 6 months worth to pay the semi-annual tax bill
2. 2 months worth of extra reserves in case tax bills increase unexpectedly

Most people get the "6 months part" -- the tax bill's coming due and it's semi-annual. It's the extra 2 months that throws them for a loop. So let's explore it.

Lenders Don't Like "Escrow Shortfalls"

Real estate taxes tend to increase over time.  Homeowners know it and lenders know it, too.  It's inevitable.  Therefore, instead of running the risk of holding too little tax money, lenders aim to hold too much.

This way, when tax bills rise -- and they always do -- lenders use your excess funds instead of their own.

When lenders have to use their money to pay your taxes, the situation is known as an "escrow shortfall" and it can be bad news for a homeowner. Because the lender has fronted hundreds or thousands of dollars on your behalf, it wants to collect those loaned dollars immediately.

The bank will handle the escrow shortfall in one of two way:

1. Ask you to make a lump sum payment for the complete amount
2. Raise your monthly mortgage payment to account for the "bigger loan"

Neither situation is as comfortable for a homeowner as just having the proper escrow amount withheld each month. It's tough to budget for a constantly changing mortgage payment.

The good news is that, so long as your tax bill increases by less than 16.67% annually, your bank should never be short on funds.

Don't Want To Escrow, No Matter What?

When you're planning for your closing, don't forget to budget for your escrow.  If you want help with your math, call or . I'll do my best to walk you through it.

Or, if you absolutely hate the idea of escrows and want an escrow-free mortgage, use my online rate quote form. I offer a bunch of loan products that make escrows optional, and most are priced the same (or better) as comparable, conventional mortgages.

Reach out anytime. I answer my own emails and my mortgage rates are great.

Editor's Note: The chart above does not apply to refinances. Refinances in the Cincinnati area have a slightly different escrow reserve chart. The theory is the same, the withholding is different.