Some borrowers can’t legally avoid escrow accounts
Millions of homeowners across the United States are legally obligated to pay part of their annual propertytax bill on a monthly basis, including most of those who have FHA or VA loans.”
Q. I want to purchase a home with a low-down-payment loan backed by the Federal Housing Administration. The mortgage broker I’m using says the FHA will require that I have a special escrow account and pay about 1/12 of my estimated property taxes into it each month. I was under the impression that I could just pay the taxes in a lump sum when they come due. Can you please clarify?
A. Most borrowers who make a down payment equal to 20 percent or more of their home’s value have the option of either paying their property taxes directly when they come due or, instead, putting a small portion of their estimated bill each month into a special escrow or “impound” account that the lender can automatically tap to pay the tax bill when it arrives.
However, most borrowers who get federally backed loans through either the FHA or the VA are required to have escrow accounts like the one you described. One reason is that since FHA and VA loans are essentially backed by taxpayers’ money, both agencies want to make sure borrowers pay their property-tax bills as soon as their tolls come due.
Q. We are planning to look for our first house this fall, so we are following your advice and getting a copy of our credit report first to make sure everything on the report is correct. Which credit-reporting company should we use?
A. Use one of the “big three” national reporting agencies. These include Experian (888-397-3742, www.experian.com), TransUnion (800888-4213, www.transunion.com) and Equifax (800685-1111, www. equifax.com).
All three agencies can now provide most consumers with reports over the Internet, which is faster than ordering a report and having it sent by mail.
Q. We have discovered some serious termite damage in our home that will cost about $4,000 to fix. Will our homeowners insurance reimburse us for the cost of the repairs?
A. Probably not. The typical homeowners-insurance policy pays only for “sudden and accidental” problems. Termites work very slowly, so their damage usually isn’t covered.
Ironically, though, your policy probably will pay for any “collateral damage” that the wood-eating vermin might cause.
For example, if termites or other pests decide to dine on a ceiling beam and the roof subsequently collapses, you would have to pay to replace the beam — but your insurance would likely cover the cost of fixing the roof or rebuilding buckled walls.
Q. We recently looked at a vacation home in the Southern California community of Rancho Santa Margarita and were amused by a nearby intersection — Antonio Parkway and Banderas Avenue. Are the streets named after actor Antonio Banderas, or is it just a coincidence that the two streets intersect?
A. It’s just a coincidence. The community of Rancho Santa Margarita was started more than three decades ago, when popular actor Antonio Banderas was probably still in diapers. Other people have noticed the unusually named intersection, too — enough to make it one of the five most “funniest intersections” in America, according to a list put together some years ago by homeowners and auto-insurance giant State Farm Insurance Co.
Other intersections on the list include Grinn Drive and Barret Road in West Chester, Ohio; and that hard-to-maneuver spot in Harahan, Louisiana, where Hickory and Dickory avenues run into Dock Street.
My favorite intersection, though, is still the spot where Ho Road crosses Hum Road — in the appropriately named town of Carefree, Arizona.
Q. You have recently answered some questions about living trusts. Forming a trust sounds like a good idea to me. But what would happen if I create a trust and then later decide that I want to change the beneficiaries who would inherit my property?
A. Actually, it’s often easier to change the beneficiaries listed in a living trust than it is to change those who are listed in a traditional will.
Trusts are typically more flexible than wills, in part because you have complete control as the trustee, thus don’t have to hire a lawyer every time you want to make a change. You can easily put a newly purchased house or other property into the trust, take an asset out or quickly change the heirs you’d like to receive your home or other possessions after you die.
Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.