Finding Out How and When:
Several mortgage loan borrowers are seeking answers to inquiry about the use of escrow funds as alternative payment to settle their home mortgage loans. However, answers to this question entails more than just a positive or negative posture, since the use of the said fund depends on the circumstances surrounding the loan.
Veterans Affairs (VA) or Federal Housing Administration (FHA) Mortgage Loans
Escrow funds required under VA and FHA mortgage loans cannot be used as house payment because they are allotted exclusively for property taxes and insurance coverage. These loans were granted by mortgage lenders under special conditions of guarantees provided by their respective federal agencies, to which the prepayment of taxes and insurance strictly form part of such assurances.
Conventional Home Loans with Private Mortgage Insurance (PMI)
A lender, who granted a mortgage loan to a borrower at less than 20% down payment, but covered by a single-premium PMI plan, may allow the borrower to cancel out the escrow funds. Under this coverage, the lender is already assured of recovering the mortgage loan extended to the borrower even if the latter defaults on his payment. The lender's PMI protection includes the physical loss of property resulting from fire, natural calamity or even delinquencies in the payment of property taxes.
Conventional Loans without Special Conditions or Special Assurances
Mortgage loans under this category are those that were traditionally granted under conventional rules and regulations, including the opening of escrow accounts intended as funds set aside for the settlement of future property taxes and prepaid insurance premiums.
Nonetheless, there are escrow fund limits.set forth under the Real Estate Settlement Procedures Act (RESPA). The latter is a consumer protection law, for one-to-four family residential properties purchased by way of loans and other forms of credit. In the event that the funds have exceeded the limit allowed under this statute, the borrower may request the lender to apply the said excess as house payment.
In line with this, the following sections provide explanations on how escrow funds could exceed the amount of mortgage loans.