When you enter into a mortgage whether from a bank or direct lender, an escrow account is opened to help you pay your property taxes and homeowner’s insurance premiums on time. Even though these are paid on an annual basis, the escrow is created so a monthly fraction towards each cost can accumulate in the escrow account. This way you don’t have to save for them separately because you make one monthly mortgage payment and part goes towards principal & interest and the tax & insurance annual payments.
When an owner financed loan is created don’t forget about the Escrows! This gives a bit of piece of mind for the seller as he knows an account has been established to keep these items paid. The loan servicer tracks these funds and adjusts the monthly payments from the buyer to account for changes to the annual bills.
When starting a new owner financed loan or private mortgage you’ll want to make sure the buyer knows that funds will have to be deposited into this account at closing, this is in addition to any down payments, earnest money, closing fees and insurance policies purchased up front. The sooner all of these funds are accounted for the better, nobody likes a surprise the day before closing!
