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|FHA Escrow refers to a special account created by the lender and funded by the borrower to pay for the various running costs, fees and taxes during the whole life of a mortgage. The escrow account is necessary with every kind of FHA-insured loan option. The funds of the account are generally used to pay for real estate taxes, monthly mortgage insurance premiums of the Federal Housing Administration, hazard insurance premiums, ground rents, special assessments, flood insurance premiums and so on.
FHA Escrow Requirements
It is generally the responsibility of your lender to make payments towards these items well on time and keep your property free from any unwanted liens. The funds however are supplied by you in most cases. It is thus important to have an escrow account and maintain adequate balance all time so as to allow timely payments to taxes and other regular fees and charges. A separate fee is charged for the creation of an escrow account, which must be paid at the time of closing.
FHA Escrow Repair
The portion of the FHA 203(k) loan that is supposed to be used for rehabilitation is kept in an escrow account. The escrow funds are released as the repair work progresses and a positive and satisfactory compliance report is submitted by the home inspector. There might be a situation when the required repairs remain uncompleted before the closing, for example due to an adverse weather condition.
Under such circumstances, funds may be escrowed and FHA will accept Form HUD-92300 known as Mortgagee’s Assurance of Completion at the time of endorsement. The responsibility to complete the repairs lies primarily on the lender, no matter whether the escrow account has adequate funds or not. In a refinancing situation, a lender can waive cosmetic or unnecessary repairs that are not required under HUD guidelines.
FHA Escrow Refund
FHA escrow requirements in case of 203(k) loan option are fulfilled by the lender. The funds are applied to the repair work and any money that is left after the completion of rehabilitation is used to reduce the principal balance. If the account has been established by the borrower, a refund is possible for the unused money. One can find the rules regarding a buy down escrow account in Handbook 4155.1.
FHA Escrow Holdback
If you are buying a home under FHA 203b mortgage program and the home needs repairs, you would be in a situation when an escrow holdback becomes necessary. This is because the bank won’t approve the loan until you do repairs and the HUD won’t let you do any repairs prior to closing. You need to put the amount necessary for rehabilitation in an escrow holdback to guarantee that you will do the repairs.