Increase in escrow payment, is this normal?

**jIM_Ohio** · 09-18-2010, 05:56 PM

Depending on when you close, the escrow account will be under or over funded.

Check property tax payments, and that will explain the difference...

for example if law says you can only have $3600 in escrow (I pulled that number out of thin air) and you contribute $300/mo to it, but in month 5 an $1800 property tax bill came, and in month 6 a $500 insurance bill came in, its possible the account was underfunded based on closing date. It usually takes about 24-30 months for an escrow account to be steady state, but if property taxes increase, or homeowners insurance increases, it will take even longer.

**disneysteve** · 09-19-2010, 11:19 AM

To answer the question, yes, this is normal. Even after you are in your house for years, your escrow amount can and will change because taxes and insurance costs rise. Ours has changed several times since we bought our house.

I will be paying almost $2,250 a month
I will net about $3,650 per month.

As for this, you have a huge problem here. You are in a home that you really can't afford. The rule of thumb is for no more than 28% of income to go toward housing. You have nearly 62% of income going toward housing. On top of that, you have an crasy car payment that amounts to an additional 12% of income. So fully 74% of income is going toward home and car. That is not sustainable in the long run. Unless you anticipate your income rising dramatically in the near future, I think you really need to sit down and reconsider your lifestyle.

**docstudent** · 09-19-2010, 11:54 AM

I can afford to make the payment, and I am going to be accountable for my loan obligation. I know things will be tight, but as a single person, I can handle the situation. I contacted my lender, and this was her response as to why the payment increased,"They went back from what your taxes should be when you purchased the condo based on your sale price and put it back to the seller's property tax rate." The owener paid $249,000 for the unit, and I purchased the for $235,000, so I assumed that it would be lower as opposed to higher. At the end of the day, I am responsible, but the increase caught be off guard.

Salary increase? In the near future, it will definately increase to around 90G to 100G...I'm basing my calculations off what people with my degree and experience typically make. I have had an opportunity to travel all throughout the US, and foreign countries, so I do not have a problem with sitting down and making the hard sacrifices for three years or so. Plus, I'm single, and I do not see myself starting a family until I am 40, so I have a bit of time, 33 years of age.

I could sell my condo because the value has not decreased, it has actaully increased in value by 40G. It is located in an ideal location, and my tax advisor, said I should net about 8G to 10G back on my income taxes, which I can add to my saving's. If not, I can rent a 1BR for about $1400, so that is an option.

**disneysteve** · 09-19-2010, 12:46 PM

Why are you spending $450/year for life insurance if you are single and childless? Who is dependent upon your income?

**mdcrim** · 09-19-2010, 12:46 PM

I closed my escrow account years ago, when I realized my mortgage company had around $1000 in a cushion so they could cover the bills. I pay my taxes and insurance directly. You may find this preferable. I just had to write a letter requesting they close my escrow account. They did without question.

**disneysteve** · 09-19-2010, 05:31 PM

Originally posted by docstudent View Post

I can afford to make the payment

Just because you can afford to make the payment doesn't mean you can afford the purchase. Logic like that has led people to buy cars with 7-year loans and buy houses with 40 or 50-year mortgages. Logic like that keeps millions of people buried in credit card debt making the minimum payments. They tell themselves that as long as they can afford the payments, they are doing okay. In reality, they aren't doing okay at all. They are using debt to fuel a lifestyle that they can't really afford.

Having 62% of your income go to your mortgage payments isn't a good idea whether you can handle those payments or not.

**docstudent** · 09-19-2010, 07:41 PM

Prior to purchasing my condo, I made the "logical" decision to pay off all of my outstanding credit card debt. To date, the only debt that I have is my car loan and home mortgage. Secondly, I have in Los Angeles, and it is not comparable with most cities in other parts of the United States. I would be paying on average of $1400 a month for a one bedroom, which is not comparable to most other people. In addition, I paid approximately $13,000 in federal taxes in 2008, and received a grand total of $1200 back from my tax returns, and that is ridiculous!!!! The past two years, I was brining home a total of $4600 per month after taxes, and that's after contributing $1000 a month to my 403b and state retirement fund. I took a hit, so my income decreased by $1,000 a month, so I have to make sacrifices and handle my obligations. This year, I will pay approximately $14,000 in federal taxes, and I will get between 8G and 10G back.....It is not ideal to some, but it works for me. If I had a wife, and a kid, I would have a different approach, however, as a single guy, it makes sense for me. It was the right time to buy in the LA basin. Prior to '09, a similar unit in my building sold for over $330,000, so I think I got a good deal, so I have to make it work.

**Seeker** · 09-19-2010, 07:53 PM

docstudent, what about property taxes? Where are those costs?

Renting is ridiculous all over this state... I agree.

But unless you are guaranteed more income this year, I'd recommend you look for other part time work as well. That is if you are committed to making this work.

33 years old is young -- in reality it's sort of amazing how much you can cut back when you are by yourself.

But realistically you have to admit that long-term, your income $'s need to increase just in order to sustain current bills.

Long-term ???? Nobody knows what the future holds. What you are doing now is unsustainable.

**docstudent** · 09-19-2010, 08:37 PM

I'm definately looking for alternative ways to increase my income.........

**docstudent** · 09-19-2010, 08:40 PM

seeker, the 2250 a month includes: mortgage, hoa, and taxes

**disneysteve** · 09-20-2010, 05:05 AM

Originally posted by docstudent View Post

This year, I will pay approximately $14,000 in federal taxes, and I will get between 8G and 10G back

Why not adjust your withholding to avoid that big refund? Better to have that money in your pocket throughout the year than lending it interest-free to the government.

It was the right time to buy in the LA basin.

On this, we'd have to agree to disagree. The "right time" to buy isn't when interest rates are at a certain level or when prices drop a certain percentage. The right time to buy is when you are financially ready to do so, have a 20% down payment saved, earn enough so that your payment is a reasonable percentage of income, have a 6-month emergency fund in place and have a stable job so that you expect to be in one place for at least 5-10 years.

**MonkeyMama** · 09-20-2010, 10:51 AM

You wouldn't want to live like this forever, but the math of condo ownership usually comes out better than renting, in these type situations. (A Cali native, obviously).

I suggest that you refinance. You can easily low your percentage by 1%. The purchase itself strikes me as fine with your income, but I am perplexed at how large your payments are. Getting a 4.5% mortgage will save you about $200/month. Sounds like you have the equity to do so.

You are well aware that you are saving a fortune in taxes as a homeowner. I'd increase your exemptions so that you get that money out of your check every month. Refinancing and lowering your tax withholdings should fix most of the problem here. Your lending ratio may still be higher than average, but would be far more reasonable, particularly for the region you live in.

If you prefer the forced savings of the big tax refund, that is fine. I certainly know very financially savvy people who had worse mortgage to income ratios when they were first starting out in the Bay Area. I just wonder if hoarding the big tax refund is making life more difficult than it has to be.

All that said, the people financially savvy people I referred to didn't have $430 car payments. Nor $135/month gym memberships. These are areas I Would consider for reduction. My gym cost $15/month for a single person, for example. When we squeezed into our first condo, we didn't have car payments - just old clunkers.

Increase in escrow payment, is this normal?