When you purchase or refinance your home, you will receive a GFE (good faith estimate) from your lawyer approximately when you will go into escrow. This GFE will describe in detail the information for your escrow account; this is commonly referred to as insurance impounds and property tax. This may or may not be necessary depending on the agreement you and your lender reach. Here's what you need to know about escrow:
Previously, home buyers would be responsible for paying their property taxes at the end of the year. However, many homeowners didn't budget properly throughout the year and thus ran short on funding. Therefore, many lenders started asking homeowners to pay these taxes and fees throughout the course of the year as opposed to at the end of the year. The overall goal of this was to have the lender pay the fees on the borrower's behalf each month to minimize any errors or missed payments. For their services, lenders receive interest on the escrow funds. Often, lenders will ask for anywhere from three to six months' of property taxes to open an escrow account.
So, is it worth it for homebuyers? Ultimately, yes. Even though you will technically lose a little bit of interest each month, it's much easier to budget monthly than yearly for something that is due no matter what. You will find yourself feeling a little more financially secure and not sweating at all when property tax season comes.