Hello, Im trying to help out my folks, they got a letter from Bank of America, saying the escrow amt will increase this upcoming year. That looks OK cause the escrow looks like its made up of home owner's insurance and taxes. But the letter says we have a shortage of $520 because of the increase escrow amt, our reserve is not met. Can someone help me understand why we need a cushion that is approx 2X escrow monthly payments? This $520 that we will probably end up paying, does it just sit in Bank of America's acct for their use? Do we ever get it back?
movement, If you do not have 20% equity in your house, then lenders will require you to have reserves in escrow. As Rocket Red Glare stated, that is fairly standard. Escrow amounts will always change depending on your tax rates, property value and insurance. Each lender usually does a standard review of your escrow balance/payments after the start of each year to make sure you are putting enough away. What probably happened was, your taxes or HO insurance increased sometime last year and when your lender paid it, it left your account short. If you ever sell your home, or eventually acheive 20% equity, then the balance that is in your escrow is usually refunded to you.
