What to Do If Your Escrow Account is Short on Funds?

December 10, 2024

The money in your escrow account is meant to cover multiple closing and homeownership costs. If you've used an escrow account to help you manage your homeownership costs in the past, you might be familiar with the concept of escrow shortage. If you don't know what we're talking about, don't worry. Our real estate specialists will give you all the information you need so you're not caught off guard if your escrow happens to go up.

What Is Escrow Shortage and Why Does It Happen?

An escrow shortage happens when the funds in the escrow account fall below the minimum requirement, so there's not enough money to cover property taxes and insurance bills. When used for homeownership costs, the escrow balance is directly affected by any market fluctuations; when the costs of taxes and insurance bills start to rise, it's more likely to find yourself short of funds because the amount that's placed in the escrow account stops covering the new sum.

In other words, you might deal with an escrow shortage after an increase in your property taxes and/or your homeowner's insurance, with rates increasing steadily from one year to the next. This rise in costs might be caused by multiple factors, like the economy nationwide or the demands caused by the local climate: Florida, in particular, has been greatly affected by hurricanes and an unpredictable rainy season, leading to increased rates in its homeowner's insurance policies.

What To Do When Your Escrow Account Is Short on Funds

The fastest way to solve the problem of escrow shortage is by making a separate payment that covers the shortage amount. This way, you won't have to deal with the added sum to your future mortgage payments. As described by US Bank, you can:

• Pay in full before the date of the escrow analysis, so the shortage amount is not added to the following 12 payments.


• Pay in full on or after this date, so the shortage amount is removed from future monthly payments.

If the borrower doesn't have the funds to cover the difference in one payment, they can spread the payments over the twelve months following the escrow analysis statement, just by adding the extra amount to each mortgage payment.

Another approach is to combine the two previous options: you can start with one large payment to ease some of the financial burden and spread the rest of your deposits over the following months until the shortage is paid in full.

Keep in mind that these options help you balance your account, but your mortgage and insurance payments will still be higher than what you were used to managing the year before. That's why covering the shortage in one full payment can bring you more stress as you work through your finances. Make sure that you have funds to spare before making the decision and don't be afraid to seek the advice of a title and escrow professional, especially if there's a large shortage to cover.

Our Specialists Are Ready To Assist You

Navigating your mortgage payments after buying a new house is tricky enough without considering a sudden shift in your tax and insurance rates. No one wants the discomfort of being caught off guard by an escrow shortage, especially when it comes to Florida's competitive real estate market.

Key Title & Escrow offers top-quality title and escrow services to buyers, lenders, and realtors across the entire state of Florida. We're the way to go if you want to protect your investment without getting lost in all the intricacies of managing an escrow account. Our escrow agents are responsible for holding the funds required to close the transaction of a property in a trust account while deals are being finalized or disagreements are being resolved.

As experts in the area, we can also help you prevent escrow shortage in the future. For one, we work with the best homeowner's insurance carriers in the country, so we can help you find an insurance policy that's tailored to your needs. You can come to us if you want a second opinion while assessing the terms of your new policy and make an informed decision with a company that's right for you.

Our specialists can also help you review your annual escrow statements and property taxes so, whenever there's a change in your escrow funds, you know where to look. Lastly, we can help you manage your savings after a home purchase. That way, you won't have to get stressed after major changes in your tax rates.

You can trust the staff at Key Title & Escrow to provide thorough, up-to-date information about escrow, including the assistance you need when your escrow account is short on funds. Don't hesitate to call (305) 235-4571 or toll-free at (800) 547-0006 if you want to learn more about this or any other topic in the realm of Florida's real estate market. Another way to get in touch with us is via the contact form on this page. Send us an email today, and we will gladly answer all your questions.