Real Estate and Home Mortgages - Is it absolutely necessay to escrow with FHA??

The question is do we HAVE to escrow with an FHA loan... is it a law or something? Do we have a voice about what we want to do with our money?

Here's the filler:

We're going on my fourth year with our FHA loan (first time mortgage). From the beginning we've made it clear that we don't want to escrow, and we'll take care of our own taxes and insurance. At first they told us that they'll let us slide on escrowing for the taxes, but will want us to escrow for the insurance. So all was good for four years, only every year we have to tell them that we don't want to escrow the taxes.

Now this year they are firm about us escrowing our taxes, no if's and's or but's. I can not stand the fact that they are taking our money and making money off of it. To make things worse they say:

"The monthly amount you must pay into your escrow to keep the balance from falling below zero during the year" - $132.14/month.
"The monthly amount allowed by federal law for unexpected tax and insurance increases and other cost" - $45.97

So now not only we have to give "Mommy" our money so she can pay our taxes for us, we also have to give her $178.11/mo. extra for "just in case". This burns me up. And just to think we could have gone conventional when we bought our house. Our real estate agent urged us to go FHA the first time around cause they pay for some of the allowables... about $700 worth. What a waste cause I could have used FHA for another house.

Now I know that once you pay down to 80% of the original loan amount you can get rid of that MIP. Is there such a thing as paying down the loan amount to a certain percentage to be able to not escrow? anybody? Thanks in advance for any advice however grim it may be.

I don't think it's a requirement, as when I got my FHA I had the option to escrow taxes and insurance or not. I chose not too. While I could have that $300 a month earning interest for me, I'm comforted by the fact that *I* am not responsible for ensuring these extremely important items are paid on time, I never even see the bills, they are sent straight to the mortgage company.

While as Pendragon says It may not be a requirement, what does your FHA loan agreement say??? IF the agreement says yes you have to then your kind of stuck.
Worse case scenario is you say no "I will pay my own" they "MAY" say ok we are calling the loan, then you may be in a real bind.
So look at your loan agreement see what it says and go from there.


Mark_ms

Just another thought..the $45.97 is probably tied into the cost of living index ie 3%.....most lenders will require that they have at least 2 months worth of funds in which to work with in the event that you are late in your payments.
You did not say where you live or what your taxes and insurance costs are, but I am willing to bet that these monies you must pay are in fact "cushions" for the escrow. Which if you think about it as a taxpaying citizen such Pendragon and myself we are loaning you the money for you so "we" would like to see these entities paid on time......Just a thought....


Mark_ms

It's also up to the LENDER, not just FHA guidelines. Most lenders will not allow you the option of paying your own taxes/insurance unless you meet a certain loan to value requirement, usually 80%. Will vary from lender to lender, but they may also charge you .25% of your loan amount to allow this too. It's not a good position for a lender to be in. Regardless of your credit history, it's simply common for people to let insurance lapse and for the taxes to be sold due to non-payment.

San Antonio, Tx.
Yearly taxes approx. $2800
Home owners Ins. $572.83

Ok, here's the skinny. I do not have the option to not escrow with this lender (Countrywide). I misunderstood the letter they sent me until I called them. I was in the wrong about what I owed them. I'm glad they cleared things up for me, but I'm still not happy that I have to escrow.

As of date I owe them $1585.67 for the escrowed taxes. The $132.14 amount is what I would have to pay to catch up for the last couple of months that I didn't pay into the escrow. So it's either I pay them the $1585, or the $132 'til the end of the year "to keep from falling below zero." So that $132 is not a cushion. And $232/mo extra for the remaining taxes I have to escrow.

That $45.97/mo however is the cushion. They're going to waive that and basically just bill me at the end of the year if (when) the taxes or insurance goes up. Oh well.

Don't forget that depending on where you live, sometimes people get hit with a huge reassessment and find themselves owing thousands in extra taxes. I think that's where the cushion comes in.

Rufus4, I also mortgaged my house through Countrywide (conventional loan, not FHA) and like you, I was unhappy that they required me to escrow for taxes and insurance. I had put down about 15% cash and mortgaged the balance. The final straw with my relations with Countrywide came when they attempted to pay my homeowners insurance, and mailed the payment to a wrong address. The insurance company never received the payment, and cancelled my homeowners insurance. Since correspondence was between the insurance provider and Countrywide, I had no idea there were problems. Since my insurance had been cancelled due to Countrywide's error, they placed their own homeowners insurance on my house, at a greatly increased cost. I was very angry with them and demanded they allow me to pay my own taxes and insurance, but they still refused. I promptly refinanced through a local company who allowed me to pay my own insurance and taxes, and now I KNOW when my insurance and taxes are paid. No more relying on a huge uncaring outfit 2,000 miles away to look after my bills.