How to Get an Escrow Refund from Your Loan Servicer
by Linda in Mississippi and by Mark in California
Ask Kate how to squeeze your escrow refund out of the loan servicer and what to do if your lender doesn't know how to calculate your income: Linda's homeowner's insurance premium decreased, leaving her to wonder when her loan servicer will get around to lowering her monthly mortgage payment.
Following my answer to Linda, don't miss Mark's Ask Kate letter on this same page. Mark tells me he can't get loan approval because the underwriter at his mortgage company doesn't understand how to calculate his income.
Fannie Mae Escrow Account Refunds By Linda T from Picayune, MS
I changed my homeowners insurance to reduce my escrow payments. How long does it take for my monthly mortgage payments to be reduced? Thanks, Linda
Ask Kate answers: Fannie Mae Escrow Account Refunds
Escrow accounts aren't easy to predict, are they?
What's an Escrow Account?
In a nutshell, borrowers set up an escrow reserve account with their lender, from which their property taxes, homeowner's insurance and mortgage insurance premiums are paid.
The money in the account comes from two sources. When the loan is originated, the homeowner is charged a specified amount to be placed into the escrow account. This amount is called reserves or a cushion.
Additionally, a portion of each house payment is deposited monthly into the escrow account by the lender.
Escrow Shortage - Not Enough Collected
But what happens when the county raises property taxes or insurance premiums go up?
Although there may have been enough funds between the cushion and the monthly payments to cover the increase, the shortage catches up with the homeowners at the next annual assessment of the escrow account.
Homeowners get an unpleasant surprise... written notice of a higher payment to replenish the escrow shortage.
Real Estate Settlement Procedures Act (RESPA)
How do you know how much (or how little) money is being held in your escrow account?
RESPA requires lenders to send an annual accounting statement of the funds held in an escrow account to each mortgage borrower. It's interesting to note that it wasn't until 1997 that lenders were required to follow this procedure uniformly.
Escrow Overage - Too Much Collected
In addition, RESPA also governs the maximum amount of money lenders are allowed to hold in an escrow account. If the balance exceeds the maximum, they must issue a refund to the homeowner within 30 days of the next assessment of the account.
With a sufficient surplus (approximately $50), you have the option of using it to pay down the loan balance or credit your escrow payments to lower future house payments.
If you believe your lender is holding an excess amount in your escrow account, send a written request in a separate envelope from your monthly payment.
Your lender must respond to your letter within 20 days and take action to resolve the issue within 60 days.
If you are not satisfied, you have the right to file a complaint with the Housing and Urban Development (HUD). The local office for your area is in Jackson, MS and can be reached at 601-965-4757.
Vacation Time on my Paystubs and Proof of Income By Mark from California
I'll keep this as simple as possible for now. I had to show the loan company proof that my hours had increased in order to qualify for a 30 year fixed refi.
They wanted a letter from my employer stating my hours had increased basically from 32 to 40 hrs or because I get paid twice a week would be 64 hours to 80 hours which is what the letter to the underwriter from our payroll manager stated.
I also supplied them with my last 2 paystubs showing the increase in my pay being paid for 80 plus hours. My paystubs read like this - I worked a week and a half, took a week's paid vacation which I had already scheduled before the increase, and worked another week and a half, for the total of 4 weeks (2 paystubs), 160 hours (plus) pay.
They denied me because 40 hours of my paystubs shows vacation on my paystub instead of actual hours worked.
My employer told them I had the increase and my paystub gross pay shows it. Vacation is your earned hours from your employer!
I needed to get the loan started again immediately and was told by a bigger bank their should be no problem with the vacation pay.
But I'm a little in fear after what just happened that the new underwriters might do the same thing.
It costs $500.00 upfront every time you start a new loan. Thanks, Mark
Ask Kate answers: Vacation Time on my Paystubs and Proof of Income
When I originated mortgages, I observed countless variances in payroll reporting methods among employers.
In fact, it took some real digging to account for many borrowers' full income.
The Verification of Employment Form (VOE)
Many borrowers are not aware that in addition to paystubs, a written Verification of Employment (VOE) is often required and can greatly compound the confusion over income.
You can imagine the chaos an inadequately filled out VOE causes when combined with paystubs already not understood by the underwriter. This can throw a major curve ball into the mortgage transaction.
The Borrowers' Responsibility in the Loan Process
Besides supplying adequate and legible paystubs that portray an entire month's income, what else can borrowers do to make sure the powers-that-be truly understand how much they earn?
Peruse the paystubs for any inconsistencies in the number of hours worked and offer a written explanation.
Then when you sit down with your mortgage originator, walk through the paystubs until you are confident he or she fully understands how to calculate your income.
Loan Originators Who Know Their Stuff
But ultimately, it is the job of the loan originator to explain to the underwriter how to calculate income when it isn't obvious on paystubs or tax returns.
Because no one should have to keep paying $500 upfront until they finally hit on a lender experienced in reading paystubs and calculating income, shop cautiously for a mortgage online
, get referrals from friends, and qualify your lender
Before Shopping for a Mortgage
Use my Mortgage Information Planner
to get your ducks in a row before making loan application, whether you meet with your loan representative on the phone or in person.
Then go to Savvy Shoppers Compare Refinance Fees
for help with shopping for a mortgage.
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