Nov. 11, 2005 - Escrow Woe

Homeowners often put too much faith in their lender's ability to estimate property taxes, and problems can occur if their escrow accounts don't have enough money to make the next tax payment. In that case, they must decide whether to pay the deficit in a lump sum or over the course of a year. Homeowners might also encounter unexpected financial trouble later if they roll the downpayment and closing costs into the loan, meaning that they have no equity and must depend on appreciation to give them housing-related wealth. Meanwhile, homeowners with ARMs could discover that their credit is not good enough for them to refinance into a FRM, leaving them vulnerable to interest-rate hikes.

Source: Philadelphia Inquirer (11/06/05); Fuquay, Jim; Jares, Andrea
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