Why do I need escrows?

Why is the bank requiring me to have an escrow account?

The reason a bank requires you to have escrows or an escrow account (they mean the same thing) is because you don’t have 20% down.  If you do not have a down payment of 20% the bank considers you a higher risk.  A higher risk of paying them back.  So they want to make sure the Michigan property taxes and homeowners insurance are paid on time.  They don’t want the house to go into foreclosure and the Michigan property taxes to be behind or to have the house to burn down and not to be insured.

The perception is that you don’t have the “experience or the savings ability or discipline”  Call it what you want but the bottom line is that they don’t trust a borrower that doesn’t have 20% down to pay the property taxes and homeowners insurance on time.  I really don’t know if there have been case studies or past reasons that they made that rule up.  But the bottom line is that they require escrow accounts if you don’t have 20% down.  No exceptions in this market.

All FHA mortgages require you to have an escrow account.

If you do have 20% down you have the choice to have escrows or not.  But believe it or not banks charge you a fee or higher interest rate if you do not have an escrow account.  Many experienced or disciplined borrowers don’t have escrow accounts.

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