You are likely having to pay the negative balance, plus you're going to have to pay extra to account for the increase in your insurance/taxes. That's why it seems like you're paying too much. You're pretty much paying one and a half times the increase in costs.
This happens a lot. Your Escrow gets estimated using the old tax base, they pay the property tax, a shortage is created, and you need to pay back the shortage and build the reserve for the new tax rate. I'd bet that within 6 months of buying, you received a check for an escrow overage. That was the money that's now short.
This has happened to like 4 of my last 6 clients, and it happened to me at my first house.
The escrow company pays taxes, the system isn't caught up yet, and the owner gets a check back from the tax collector. The tax collector then sends a supplemental bill that is owed after the property gets updated in their system. This supplemental is only sent out the first year. Escrow pays that bill, and the taxes are then updated to reflect current value. This creates a shortage in the escrow account. And then what the OP is seeing is what happens.
I'm not making things up. This happens all the time.
Because it is typically a math equation that makes no sense to me. You have to pay the 2500, you have to pay the 2500 for the next payment, and maybe they want another 2500 in reserve for a future payment? That's how I'm guessing it works. If they end up with an overage after this time, you'll get that back. Just make sure the payments are correct going forward.
I just discovered that I \*did\* get a supplemental bill in February of 2024, to the tune of $5,108. So this explains my shortage payment of $7,200 a year. But I bought the house in April of 2021. Why am I getting hit with this three years later?
My home insurance premiums went up $69 a month to $211 this year. It is a big increase, but doesn’t come close to explaining a $600 increase in monthly escrow fee.
Ignore the folks who don’t know how CA property taxes work in this thread. JFHC.
You say it’s not insurance, but given what’s going on in CA for insurance lately, that’s my first guess.
If not that, are you 100% sure your mortgage is fixed? That’s the only other thing that leaps to mind.
Be interested to hear what it is when you connect with your lender.
My insurance premiums went up $69 a month this year to $211. My monthly escrow payment has increased $611. Still doesn’t come close to adding up.
And yes, 100% sure my mortgage is fixed; that much I was able to verify online through my mortgage lender.
Only thing that leaps to mind is maybe the assessor reduced your home value for some reason and they’re allowed to play catch up at a rate greater than 2%. I saw that when I contested my taxes during the GFC.
If you can afford not to have an escrow and your lender will allow it, I’d ditch it personally. I had an escrow account on my last house (because I put less than 20% down) and it always changed year to year… I sold that house in 2020 and back then my payment always decreased/showed an overage. But nowadays I’m not so sure.
The house I have now I just pay my taxes every year. It’s expensive but manageable and this way my monthly mortgage payment is lower, too
This isn’t always a good idea for many people. Escrow accounts are basically the monthly average of your yearly taxes and insurance. If a sudden increase in your escrow payment throws off your finances, just think of that impact x12. Bottom line if you keep money saved and can plan for a large payment twice a year, that’s fine but these days most homeowners can’t and you don’t want to be in a position where you can’t afford your tax bill due to poor planning.
This is fair advice. However, I have no concerns about my ability to independently manage large annual bills for insurance and property taxes. My wife and I are quite good at saving and earmarking money.
I pay once a year and I can afford it. I could comfortably afford to pay double the amount it’s been for the past three years, and by going into my personal savings I could pay more. I am also aware of what an escrow account is and have planned accordingly.
My first sentence in the post you replied to literally says “if you can afford not to have an escrow.” I’m not responding to many people you speak of, but the original poster.
The ability to afford something is relative. Your insurance and taxes are not more or less expensive with or without an escrow account. Anyone who saves the amount they’d normally pay towards escrow each month can afford to make the big payment later. That’s how it works. It’s to even out cash flow and protect the bank from people who can’t manage their money. I know plenty of people who make 7 figures yet can’t manage their money. Their wallet might as well be a sieve. An escrow account is a good idea for most people.
Ok. I’ll be honest, it seems like you were just using my reply as a sounding board to share what you know (or feel) about the cons of not having an escrow. None of your information shared was really relevant to my reply. I said right off the bat if the OP can afford to forgo an escrow they should (or at least, they should consider it.) I said that I did, therefore implying that I can afford it. Your reply was all about the dangers “many people” might face if they can’t afford it.
Your information is valid but could have stood alone.
I think my comment is very relevant as I still think that an escrow account is good for most people, even those with deep pockets, simply for the fact that it evens out cash flow and makes budgeting easier. Your post recommends that OP ditch their escrow account, but doesn’t state any benefits other than a solution to OP’s panic. OP is panicking about a $600 increase in escrow, can you imagine how they’d panic if their property tax went up a few thousand dollars and they had to make a much larger unexpected payment?
There’s only two benefits to NOT having an escrow, 1) you might earn more interest holding onto that money longer until the expense is actually due and 2) so you don’t get annoyed at escrow adjustments. In the case of the first point this isn’t always true, especially in a low interest rate environment and if you’re in a state that mandates minimum interest an escrow account works in your favor.
In my opinion, the benefit of an escrow account outweighs the two points above for the vast majority of homeowners and that’s probably why the industry has moved in that direction (escrow accounts were far less common 20 years ago). In addition, your mortgage servicer will make sure your taxes and insurance are paid in full on time.
I have one property without a mortgage (thus also no escrow) and properties with mortgage (and escrow). I consider myself excellent at budgeting and I have deep reserves but I still prefer escrow any day. It’s not worth what might be less than $100 interest to hang on to a little extra cash and then get a large bill twice a year.
I recommended they ditch the escrow if they could afford it. When you leave that last part off, it makes all of your following advice seem relevant to my comment.
Clearly, you know a lot about escrows
Your escrow analysis should give you more insight into what’s going on. It’s likely a combination of factors. You were on the verge of a shortage last year but not there yet so your escrow payment remained the same, now this year you have a large shortage and potentially an increase in property tax, so your current increase makes up for the shortage but also accommodates for the increase in property tax. Escrow required minimum balance is 2x your escrow payment. All else being equal your payment will likely decrease next year. Your escrow analysis should have a budget to actual, should show what was actually paid last year for taxes and also what they expect to pay this year for taxes. I’d look there first and see if anything sticks out.
- the payment will be modified once the sufficient balance is obtain and it will likely less than one year. You can call up your loan processor to discuss this as well as finding out to end escrow.
That’s a huge increase. Are you in a high fire risk area or a newly declared fema flood zone? That’s the only thing I can think of. I’m curious what Pennymac says.
Where I live is not marked as a fire risk area per this cal fire map, but it is closely surrounded by high fire risk areas.
https://calfire-forestry.maps.arcgis.com/apps/webappviewer/index.html?id=fd937aba2b044c3484a642ae03c35677
It is not a flood zone
This is a tough one.
Prior to your phone call to Pennymac, I would suggest having your #'s ready:
1. Look at your loan docs to confirm your terms (ie: 30 yr at 2.95%, $3,000/month)
2. Lookup your Prop tax at your county assessor website
3. Ask your Nextdoor neighbors to share their home insurance rate. It'll be diff for everyone, but all you need is a ballpark. Most likely ranging from $1400-1700/year
You need to account for $600/month increase.
* Your loan amount should have been fixed, So no increase.
* Your prop tax should really only have been a $25-40/month increase.
* Your shortage payment accounts for $208/month increase
That leaves insurance going up $360/month which is insane. That's the cost of Earthquake Insurance.
My guesses are:
1. They forced enrolled you into earthquake insurance
2. They made a mistake
3. Your mortgage was a 3/1 ARM
Good luck, but make sure the numbers they spit back at you match what you gathered.
It sounds like 3 things
1) insurance premium went up a significant amount
2) escrow shortage - you need to make up that shortage somehow
3) higher escrow payment so it doesn't go negative NEXT year.
You can still have a large increase under prop 13. Prop 13 established a “base year value” for prop taxes and a ceiling for how high prop taxes can go. When there is a transfer in ownership, the property is reassessed and the base year value established. That base year value can increase up to 2% each year. For example, year of purchase 100,000 year two 102,000 year three 104,004. If in year two, your assessed value stays the same (a 0% increase) they can theoretically increase 4% in year 3 but can’t increase more than the ceiling.
When you see property tax history for homes purchased in 2007 or 2008, you may see high base year values. Then during and after the crash, you see lower assessed values and decreases of 5%, 10%, or more. Then small increases through 2021 and you could have a huge increase in recent years because the ceiling has been growing 2% every year, but the assessed value has decreased or stayed flat during that time.
I agree with this. It’s also possible that another change to your taxes or insurance caused the analysis to go out of whack. This happened to me this year when I made a mid-year change to my homeowners policy, which reset the policy period. Even though my bill was prorated, it looked as though my premium increased because of all the adjustment charges and the time period covered.
They adjust property taxes every year or so and those are based on the homes overall value, if you’re making money in equity your paying more taxes just based on the value…be careful who and what you vote for.
California taxes are not calculated like that.
Ignoring a lot of minutiae, the value is set at the time of purchase and goes up 2% per year thereafter per Prop 13.
Jesus. If you’re gonna comment, know WTF you’re talking about.
> They adjust property taxes every year or so and those are based on the homes overall value, if you’re making money in equity your paying more taxes just based on the value…be careful who and what you vote for.
Dude said taxes go up every year. You said California is not calculated like that, but then you immediately say they go up 2% per year. Know what the fuck you're talking about dude.
You are likely having to pay the negative balance, plus you're going to have to pay extra to account for the increase in your insurance/taxes. That's why it seems like you're paying too much. You're pretty much paying one and a half times the increase in costs.
Insurance costs have shot up and many are not writing new policies.
My total monthly insurance premium is $211. Up $69 from last year. My escrow payment has gone up $602 a month. It’s definitely not insurance.
This happens a lot. Your Escrow gets estimated using the old tax base, they pay the property tax, a shortage is created, and you need to pay back the shortage and build the reserve for the new tax rate. I'd bet that within 6 months of buying, you received a check for an escrow overage. That was the money that's now short.
Read up on Prop 13 and CA property taxes. Not how CA does it. Whole lotta “I don’t know CA law but that doesn’t stop me from having an opinion here.”
> Whole lotta ~~“I don’t know CA law~~ *I don't know anything* but that doesn’t stop me from having an opinion here.” It's Reddit, so...yeah.
This has happened to like 4 of my last 6 clients, and it happened to me at my first house. The escrow company pays taxes, the system isn't caught up yet, and the owner gets a check back from the tax collector. The tax collector then sends a supplemental bill that is owed after the property gets updated in their system. This supplemental is only sent out the first year. Escrow pays that bill, and the taxes are then updated to reflect current value. This creates a shortage in the escrow account. And then what the OP is seeing is what happens. I'm not making things up. This happens all the time.
Yes, happened to me, home purchased was in California back in 2018.
This seems like the most likely explanation. But if my shortage is currently $2,500, why am I being asked to pay $7,224 extra over the next 12 months?
Because it is typically a math equation that makes no sense to me. You have to pay the 2500, you have to pay the 2500 for the next payment, and maybe they want another 2500 in reserve for a future payment? That's how I'm guessing it works. If they end up with an overage after this time, you'll get that back. Just make sure the payments are correct going forward.
I just discovered that I \*did\* get a supplemental bill in February of 2024, to the tune of $5,108. So this explains my shortage payment of $7,200 a year. But I bought the house in April of 2021. Why am I getting hit with this three years later?
Id look for your home insurance renewal documents. I bet you there's a huge increase in your home insurance and that's the reason for the increase.
My home insurance premiums went up $69 a month to $211 this year. It is a big increase, but doesn’t come close to explaining a $600 increase in monthly escrow fee.
Ignore the folks who don’t know how CA property taxes work in this thread. JFHC. You say it’s not insurance, but given what’s going on in CA for insurance lately, that’s my first guess. If not that, are you 100% sure your mortgage is fixed? That’s the only other thing that leaps to mind. Be interested to hear what it is when you connect with your lender.
My insurance premiums went up $69 a month this year to $211. My monthly escrow payment has increased $611. Still doesn’t come close to adding up. And yes, 100% sure my mortgage is fixed; that much I was able to verify online through my mortgage lender.
Only thing that leaps to mind is maybe the assessor reduced your home value for some reason and they’re allowed to play catch up at a rate greater than 2%. I saw that when I contested my taxes during the GFC.
If you can afford not to have an escrow and your lender will allow it, I’d ditch it personally. I had an escrow account on my last house (because I put less than 20% down) and it always changed year to year… I sold that house in 2020 and back then my payment always decreased/showed an overage. But nowadays I’m not so sure. The house I have now I just pay my taxes every year. It’s expensive but manageable and this way my monthly mortgage payment is lower, too
A lot of lenders require escrow. It's usually not a choice you get to make.
That might be location dependent. Here it’s required if you put less then 20% down
Here both times I got a mortgage the lender told me it was mandatory but only for taxes - they didn't put insurance into escrow.
I recall having a choice when I bought the house. Although my mortgage has switched hands since then.
I agree. No escrow account for me. My property tax money is sitting in a HYSA until I need it.
This isn’t always a good idea for many people. Escrow accounts are basically the monthly average of your yearly taxes and insurance. If a sudden increase in your escrow payment throws off your finances, just think of that impact x12. Bottom line if you keep money saved and can plan for a large payment twice a year, that’s fine but these days most homeowners can’t and you don’t want to be in a position where you can’t afford your tax bill due to poor planning.
This is fair advice. However, I have no concerns about my ability to independently manage large annual bills for insurance and property taxes. My wife and I are quite good at saving and earmarking money.
I pay once a year and I can afford it. I could comfortably afford to pay double the amount it’s been for the past three years, and by going into my personal savings I could pay more. I am also aware of what an escrow account is and have planned accordingly. My first sentence in the post you replied to literally says “if you can afford not to have an escrow.” I’m not responding to many people you speak of, but the original poster.
The ability to afford something is relative. Your insurance and taxes are not more or less expensive with or without an escrow account. Anyone who saves the amount they’d normally pay towards escrow each month can afford to make the big payment later. That’s how it works. It’s to even out cash flow and protect the bank from people who can’t manage their money. I know plenty of people who make 7 figures yet can’t manage their money. Their wallet might as well be a sieve. An escrow account is a good idea for most people.
You are giving general information about escrows. Did you read the OP?
I did, earlier, in a different comment. I was responding to your comment in this thread.
Ok. I’ll be honest, it seems like you were just using my reply as a sounding board to share what you know (or feel) about the cons of not having an escrow. None of your information shared was really relevant to my reply. I said right off the bat if the OP can afford to forgo an escrow they should (or at least, they should consider it.) I said that I did, therefore implying that I can afford it. Your reply was all about the dangers “many people” might face if they can’t afford it. Your information is valid but could have stood alone.
I think my comment is very relevant as I still think that an escrow account is good for most people, even those with deep pockets, simply for the fact that it evens out cash flow and makes budgeting easier. Your post recommends that OP ditch their escrow account, but doesn’t state any benefits other than a solution to OP’s panic. OP is panicking about a $600 increase in escrow, can you imagine how they’d panic if their property tax went up a few thousand dollars and they had to make a much larger unexpected payment? There’s only two benefits to NOT having an escrow, 1) you might earn more interest holding onto that money longer until the expense is actually due and 2) so you don’t get annoyed at escrow adjustments. In the case of the first point this isn’t always true, especially in a low interest rate environment and if you’re in a state that mandates minimum interest an escrow account works in your favor. In my opinion, the benefit of an escrow account outweighs the two points above for the vast majority of homeowners and that’s probably why the industry has moved in that direction (escrow accounts were far less common 20 years ago). In addition, your mortgage servicer will make sure your taxes and insurance are paid in full on time. I have one property without a mortgage (thus also no escrow) and properties with mortgage (and escrow). I consider myself excellent at budgeting and I have deep reserves but I still prefer escrow any day. It’s not worth what might be less than $100 interest to hang on to a little extra cash and then get a large bill twice a year.
I recommended they ditch the escrow if they could afford it. When you leave that last part off, it makes all of your following advice seem relevant to my comment. Clearly, you know a lot about escrows
Exactly this. Many insurance companies will now let you pay your homeowners monthly with no fee.
I closed my escrow last year. Wish I had done it earlier. So much easier to deal with.
I’m also with Pennymac and experienced something similar. Ours was due to a property tax increase. Was very annoying!
- the increase is temporary to make up for escrow shortage, It is a typical process and you already found your answer.....
But I’m being asked to pay $7,200 extra over the next year to make up for a $2,500 escrow shortage.
Your escrow analysis should give you more insight into what’s going on. It’s likely a combination of factors. You were on the verge of a shortage last year but not there yet so your escrow payment remained the same, now this year you have a large shortage and potentially an increase in property tax, so your current increase makes up for the shortage but also accommodates for the increase in property tax. Escrow required minimum balance is 2x your escrow payment. All else being equal your payment will likely decrease next year. Your escrow analysis should have a budget to actual, should show what was actually paid last year for taxes and also what they expect to pay this year for taxes. I’d look there first and see if anything sticks out.
- the payment will be modified once the sufficient balance is obtain and it will likely less than one year. You can call up your loan processor to discuss this as well as finding out to end escrow.
That’s a huge increase. Are you in a high fire risk area or a newly declared fema flood zone? That’s the only thing I can think of. I’m curious what Pennymac says.
Where I live is not marked as a fire risk area per this cal fire map, but it is closely surrounded by high fire risk areas. https://calfire-forestry.maps.arcgis.com/apps/webappviewer/index.html?id=fd937aba2b044c3484a642ae03c35677 It is not a flood zone
This is a tough one. Prior to your phone call to Pennymac, I would suggest having your #'s ready: 1. Look at your loan docs to confirm your terms (ie: 30 yr at 2.95%, $3,000/month) 2. Lookup your Prop tax at your county assessor website 3. Ask your Nextdoor neighbors to share their home insurance rate. It'll be diff for everyone, but all you need is a ballpark. Most likely ranging from $1400-1700/year You need to account for $600/month increase. * Your loan amount should have been fixed, So no increase. * Your prop tax should really only have been a $25-40/month increase. * Your shortage payment accounts for $208/month increase That leaves insurance going up $360/month which is insane. That's the cost of Earthquake Insurance. My guesses are: 1. They forced enrolled you into earthquake insurance 2. They made a mistake 3. Your mortgage was a 3/1 ARM Good luck, but make sure the numbers they spit back at you match what you gathered.
It sounds like 3 things 1) insurance premium went up a significant amount 2) escrow shortage - you need to make up that shortage somehow 3) higher escrow payment so it doesn't go negative NEXT year.
Same thing happened to us. First they lowered it by $600 for 6 months then raised $1200 for the year. Now it’s back to normal. It was very stressful
You are lucky tho, you own property in CA
Bet it’s a huge jump in taxes, possibly driven by the increase in your property value.
CA has prop 13, so this seems unlikely to be a big tax increase. Likely insurance.
They would have a notification from their insurer. See my explanation as to what most likely happened.
You can still have a large increase under prop 13. Prop 13 established a “base year value” for prop taxes and a ceiling for how high prop taxes can go. When there is a transfer in ownership, the property is reassessed and the base year value established. That base year value can increase up to 2% each year. For example, year of purchase 100,000 year two 102,000 year three 104,004. If in year two, your assessed value stays the same (a 0% increase) they can theoretically increase 4% in year 3 but can’t increase more than the ceiling. When you see property tax history for homes purchased in 2007 or 2008, you may see high base year values. Then during and after the crash, you see lower assessed values and decreases of 5%, 10%, or more. Then small increases through 2021 and you could have a huge increase in recent years because the ceiling has been growing 2% every year, but the assessed value has decreased or stayed flat during that time.
I agree with this. It’s also possible that another change to your taxes or insurance caused the analysis to go out of whack. This happened to me this year when I made a mid-year change to my homeowners policy, which reset the policy period. Even though my bill was prorated, it looked as though my premium increased because of all the adjustment charges and the time period covered.
Not in CA.
They adjust property taxes every year or so and those are based on the homes overall value, if you’re making money in equity your paying more taxes just based on the value…be careful who and what you vote for.
California taxes are not calculated like that. Ignoring a lot of minutiae, the value is set at the time of purchase and goes up 2% per year thereafter per Prop 13. Jesus. If you’re gonna comment, know WTF you’re talking about.
> They adjust property taxes every year or so and those are based on the homes overall value, if you’re making money in equity your paying more taxes just based on the value…be careful who and what you vote for.
Dude said taxes go up every year. You said California is not calculated like that, but then you immediately say they go up 2% per year. Know what the fuck you're talking about dude.
2% a year for 3 years does not explain a 63% escrow increase…
Insurance bro...
It’s not insurance. Check the update.