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Finance

What is Escrow Analysis?

By Luke Arthur
Updated Feb 18, 2024
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An escrow analysis is a process used to determine the condition of an escrow account. When buying a home, individuals will often opt for a mortgage with an escrow account attached. With this type of account, the taxes and insurance for the property can be paid with the mortgage payment. Escrow analysis is an annual process used to determine if the escrow account is funded properly.

The amount of the mortgage payment is determined by the amount of money that is needed in the escrow account. Escrow accounts have to have a certain amount of money in them in order to meet the necessary requirements associated with this type of account. An escrow analysis is used to determine how much money is going to be needed over the course of the next year and whether the current mortgage payment is going to be enough to fully fund the account.

After an escrow analysis is completed, sometimes there will be a surplus. If there is a surplus, the escrow company is going to take out the extra money and give it back to the borrower. In this case, the borrower is going to receive a check in the amount of the overage.

In some cases, the escrow analysis will show that the account is underfunded. When this happens, the shortage is going to have to be made up in one of two ways. The mortgage company is going to notify the borrower of the shortage and let him or her decide how to fix the problem.

The borrower will be able to choose to make up the shortage in one lump sum. If this is the choice, the borrower will then have to issue a check to the mortgage company in the amount of the shortage. The other option he or she has is to increase the mortgage payment over the course of the year. For example, if there was a $120 US Dollars (USD) shortage in the escrow account, the mortgage payment would be increased by $10 USD per month to make up the difference.

Changes in the needs of an escrow account can occur for several reasons. The most common reason for changes is when the homeowner's insurance premium increases. After a homeowner has had a loss in the house, the insurance rates could increase. The taxes on the property will also fluctuate a bit from one year to the next.

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