What Is an Escrow Analysis Statement?

Understanding Escrow Accounts

An escrow account is a specialized account established by a mortgage lender or servicer to hold funds for property taxes and homeowners insurance premiums. These accounts ensure timely payment of these expenses, with funds typically collected as part of the borrower’s regular monthly mortgage payment. The servicer uses accumulated funds to pay bills when due. This system helps homeowners budget for these significant costs.

Key Elements of an Escrow Analysis Statement

An escrow analysis statement provides a detailed breakdown of the activity within a homeowner’s mortgage escrow account over a specific period, usually the past 12 months. It also projects the account’s activity for the upcoming year. This document helps homeowners understand how their escrow payments are being managed.

The statement begins with the “Beginning Balance,” showing the amount of money in the escrow account at the start of the analysis period. This balance represents funds available before new payments or disbursements.

The statement also details “Payments Received,” which is the total amount the homeowner contributed to the escrow account during the analyzed period.

A significant part of the statement involves “Projected vs. Actual Disbursements.” This section compares the servicer’s initial predictions for property tax and insurance payments with the amounts actually paid out. Discrepancies often arise due to changes in tax assessments or insurance policy renewals.

The “Ending Balance” reflects the amount remaining in the escrow account at the close of the analysis period. This balance is then compared against the “Required Cushion,” which is a reserve amount lenders are permitted to maintain. Federal regulations generally allow servicers to hold a cushion equal to one-sixth, or approximately two months, of the annual escrow disbursements.

The statement also includes a “Projected Account Balance for the Next Year,” which forecasts the expected balance based on anticipated payments and disbursements. This projection helps determine the adequacy of current contributions. Based on this analysis, the account may show a surplus, shortage, or deficiency, which impacts future payments.

Why Your Payment Might Change

An escrow analysis often results in adjustments to a homeowner’s monthly mortgage payment. These changes primarily stem from fluctuations in property taxes or homeowners insurance premiums, or an imbalance in the escrow account itself. The analysis determines if the current monthly escrow contributions are sufficient to cover anticipated future expenses.

If the analysis reveals a “surplus,” meaning there is more money in the escrow account than needed, the servicer handles this excess. Generally, if the surplus exceeds a certain threshold, such as $50, the servicer is required to refund the amount to the homeowner within 30 days. For smaller surpluses, the amount may be applied to reduce future monthly escrow payments.

Conversely, a “shortage” or “deficiency” occurs when the escrow account has less money than required to cover projected disbursements and maintain the necessary cushion. This often happens if property taxes or insurance premiums increased more than anticipated. To rectify a shortage, the servicer will typically increase the homeowner’s monthly escrow payment.

This increased payment covers the deficit, often spread over 12 months, in addition to standard projected payments. For instance, a $600 shortage might increase monthly escrow payments by $50 for the next year.

What to Do After Receiving Your Statement

Upon receiving an escrow analysis statement, homeowners should carefully review it for accuracy. The first step involves comparing the property tax amounts listed on the statement with actual property tax bills received from the local taxing authority. Similarly, compare the homeowners insurance premiums shown against the latest insurance declarations or invoices.

If any discrepancies are identified, or if there are questions about the calculations, it is important to contact the mortgage servicer promptly. Homeowners should have their account number readily available, along with specific details from the statement that are unclear or appear incorrect. Gathering supporting documents, such as tax bills or insurance declarations, before contacting the servicer can also be beneficial.

It is also important to note the effective date of any payment changes indicated on the statement. Escrow analysis statements are typically issued annually, but any adjustments to the monthly payment usually take effect a few months after the statement is generated. Understanding this timeline helps homeowners prepare for any adjustments to their budget.