Navigating the escrow/settlement, mortgage and homeowner’s insurance processes

Buying a home can be stressful enough. But your anxiety level may increase at the thought of the process of purchasing a home

Escrow, mortgage and homeowner’s insurance might come to mind as those necessary but intimidating steps in the mortgage process. Have no fear, though. With a little research, you can easily navigate each one and feel confident as you get through this exciting time.

Here are some basics you need to know about escrow, mortgage and homeowner’s insurances.

Let’s start with private mortgage insurance for conventional loans. Also known as PMI, this is a monthly payment that homeowners will take on if they did not pay at least 20% for a down payment. Because of the higher financial risk, lenders will require borrowers to pay for the insurance until the outstanding balance reaches a certain point. Some lenders will automatically remove the requirement. You can also begin the discussion once 20% equity is reached or the mortgage balance reaches 80% of the home’s appraised value.

While mortgage insurance protects the lender, homeowner’s insurance protects you and the lender from certain events like fire or weather-related events that cause damage to the home. Depending on your situation, homeowner’s insurance will also be a requirement before getting the green light on a mortgage. Given the financial stakes involved, lenders will want to make sure the home is insured before partnering with you. This insurance will also cover personal belongings, liability and other things.

Finally, none of these processes can be carried out without escrow. Escrow is the overall process led by a third-party settlement agent/escrow officer that will mediate the real estate transaction and all the moving parts. The Escrow Officer will hold onto deposits and pertinent paperwork until the sale is finalized.

When people refer to closing a deal, it’s typically meant that the escrow/settlement process is complete. Once you close on your home, the mortgage payment may include items for an escrow account, if an escrow account is required or otherwise requested, to help pay for PMI, home insurances and property taxes.

More American households becoming equity rich

Nearly 20 million American homeowners share something in common: They are equity rich.

Data from the first quarter of 2021 reveal that about a third of homeowners are seeing substantial increases to their home equity.

As home prices and appreciation continue to rise, the share of homeowners in this position has risen by several percentage points in just one year. In 2020, about 28% of homeowners were considered equity rich.

Despite the pandemic, the real estate market flourished. Low interest rates fueled the real estate expansion. And more than a year later, the real estate market continues to thrive.

Almost everywhere in the country, a majority of homeowners are better off today than they were last year or the year before. With increased equity, homeowners can capitalize the moment through a mortgage refinance, which can lower their monthly bill or increase their financial flexibility.

A refinance mortgage lets borrowers latch onto today’s interest rates, saving them money on finance cost and monthly mortgage payments.

Some homeowners opt for a cash-out refinance. This type of loan allows borrowers to secure extra funds for big purchases or other investments like home renovations or higher education. A cash-out refinance is also a great way to consolidate debt into one easy and predictable payment.

Team Jaro has the experience and passion to assist you. Our lending experts focus on customer education and mortgage knowledge so you feel confident about the road ahead. Choose from a variety of mortgage products for any situation. Our commitment to you is this: finding you the right loan program that meets your unique financial situation and advances your financial goals.