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There are so many things involved with buying a home that it gets confusing quickly. Although VA home loans make it easier for qualified buyers to afford a home, you must also be aware of all of the different stipulations that must be met throughout the home buying process. One area where many people have questions is with an escrow account.

During the home buying process, many lenders require that new homebuyers put money into an escrow account that holds funds such as the earnest money that goes towards the deposit. While some people end their accounts once they take possession of the house, others are required to keep them going. 

When this happens, it is typically to cover the cost of taxes and homeowner’s insurance so that no one gets surprised with annual bills that can be quite large. The account stays open and a small portion of the monthly payment is added into the escrow account. When the annual bill for taxes and/or insurance arrive, the escrow account balance pays the amount due

Who Manages the Funds?

This account is normally manned by a neutral third party entity. This may be a company that specifically manages these types of accounts, or it could be an agreed upon attorney. Before the account is opened, you have the right to know who manages the funds.

What are the Benefits of Maintaining the Account?

The main reason for maintaining the account after closing is to make it easier to manage the larger costs of home ownership. For instance, your property taxes can cost up to several thousand dollars a year; and homeowner’s insurance can add up fast as well. Your lender also has a vested interest in ensuring you are staying on top of paying these costs. By placing the money into a fund, lenders gain reassurance that you are holding up your end of the loan contract.

Does the VA List This as a Requirement?

Va loans do not require you to set money aside in this type of account. However, the lender that you work with can list this as a requirement for you to get loan approval from their company. There are limits to how much they can ask to be set aside, but most lenders stick to a reasonable amount that falls well within the guidelines for VA home loans.

How Much Money Must be Deposited at Closing?

The amount that is required to be placed into escrow can vary significantly from one lender to the next. However, it is fairly standard to need to put down at least three months of the predicted property tax payments. You may also need to cover 12 to 15 months of the homeowner’s insurance payments.

Can It Be Included as a Seller Concession?

One of the nice things about VA loans is that they allow for the seller to cover up to 4 percent of the amount provided for the home loan to be used for concessions. The money necessary to complete the escrow requirements often falls into this category, and you can ask to have this worked into your homebuyer’s agreement if the seller is willing to make the concession.

Being an informed homebuyer puts you in the best position to make your new purchase a financial asset that serves you well for years to come. Setting money aside for closing costs is always important. If you do find that you must keep this type of account going after the closing process, just remember that it helps everyone to break up big payments into smaller ones that are easier to manage.

Have more questions about the VA loan program and process? The brokers at 1st United Mortgage are your go-to people for any concerns about VA loans, FHA loans, and loan refinancing. Contact us today, and we’ll walk you through the entire process.


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