As a Texas homeowner, selling your house seems like a great accomplishment. Selling your house comes with multiple financial components that should not be neglected, the escrow account being one of them. Most Texas homeowners’ escrow account processes remain unexplored, and they remain confused with the processes of escrow balance at closing, refunds, transfers, and the closing process. At Hilltop Home Buyer, we believe defining the escrow account process should eliminate confusion or stress for first-time sellers, and even experienced sellers. This is a guide for selling your home and processing account transfers. It includes information on refunds, transfers, the closure process, and how to sell a house, all of which should make the process easier.
What Is an Escrow Account and How Does It Work in Texas Real Estate Transactions
An escrow account is a savings account managed by your mortgage lender. With every mortgage payment, your lender takes a part to cover property taxes, homeowners’ insurance, flood insurance (if required), and sometimes private mortgage insurance (PMI). These funds are held to protect both you and your lender. If taxes are not paid, then the county has the ability to seize your home, and if the homeowners’ insurance has not been paid, your lender’s secured loan is at risk. Lenders are allowed to take up to a two-month buffer from the escrow payments. When you purchased the home, the lender estimated the annual fees, divided the amount by 12, and added the buffer to your monthly payment.
Texas is a little different from most states when it comes to escrow. Lenders in Texas are not required to pay interest on the funds kept in your escrow account. In other words, your savings in escrow are not earning interest. If Texas homeowners put 20% or more as a down payment, they have the option to pay property taxes and insurance and not use escrow. Texas property tax bills on a home with a median price of $340,000 can amount to several thousand dollars annually. Because of this, most people probably just want to use escrow to have a simpler way of paying the property taxes.
Understanding Escrow Requirements for Texas Homebuyers and Sellers
Texans have no choice but to comply with the procedures associated with escrow accounts detailed in section 10 of RESPA. Most lenders will not approve mortgages of less than 20% without an escrow account. Even with a 20% down payment, lenders will often approve a mortgage only if an escrow account is established. For high-cost loans, lenders must establish escrow accounts to ensure the borrower does not incur payment shock when large bills for insurance and taxes are due. It is important to know that your escrow account does not simply disappear when you sell your home and will carry over and remain in use until you pay off the loan in full.
Your escrow account carries a balance, and the timing of your sale is critical in determining the impact your escrow account has. Each year, insurance and taxes are paid, in effect, creating a cycle. If you sell your home during the early part of the year, you may receive a significant refund once the account is settled. If you wait until after taxes have been paid, the refund may be small. Sellers in Texas are often shocked to see the final amount of their escrow refund after their mortgage is settled. The timing of the closing in relation to when insurance and taxes were paid has a significant impact.
Texas Escrow Laws and Regulations Every Homeowner Should Know
Texas homeowners easily find protection for escrow accounts under federal and state law. The Real Estate Settlement Procedures Act (RESPA) has provisions that limit the uses of escrow accounts and prohibit illegal kickbacks. The law also states that the maximum cushion a lender may retain is 2 months of escrow payments. Anything collected beyond that must be returned. Lenders must also conduct annual escrow analyses and must refund excess funds or raise the payment if a payment is needed to cover a deficiency.
Texas homeowners also find protection under the Texas Tax Code, Section 31.072, which manages property tax escrow accounts. This provision states that when a tax bill is issued, a tax collector must use the funds in the escrow account to pay the taxes and must return any remaining funds to the taxpayer. Some counties, like Fort Bend County, even allow homeowners to set up property tax escrow accounts with the tax collector. This option allows homeowners to manage their property taxes on a month-to-month basis after paying off their mortgage. For homeowners looking to simplify the entire process, a company that buys homes in Dallas and nearby cities can provide a hassle-free selling experience that eliminates escrow complexities altogether.
How Long Does the Escrow Process Take in Texas Real Estate Transactions
In Texas, while the duration of closing escrow on a traditional sale might fall between 30 and 45 days, the receipt of the escrow refund is subject to different regulations. Federal law is explicit on this matter, allowing a mortgage servicer 20 days (excluding weekends and holidays) to refund escrow funds to the borrower after the mortgage is paid in full. It is crucial to note that the 20-day time frame does not begin until the final payment is made, which occurs at the closing. Having a sale closing does not affect this time frame, so even if your home sale closes in 30 days, your escrow refund clock begins ticking on that date.
The receipt of the refund is largely dependent on the mortgage servicer’s internal operations. While mortgage servicers that offer direct deposit might only take 5 to 7 days, most homeowners in Texas wait between 7 and 20 days to receive a refund check, which is sent via postal mail. Regardless of when the refund is received, the right to receive the refund is protected by federal law. You have every right to contact your mortgage servicer as needed, and the 20-day time period should act as your benchmark for determining the need to contact.
Step-by-step Guide to Closing Escrow on Texas Real Estate Sales
Knowing exactly what happens to your escrow account during a Texas home sale helps you avoid surprises and walk away with every dollar you are owed.
- Payoff Statement is Ordered — Your buyer’s lender requests a payoff statement from your mortgage servicer, which includes your remaining loan balance plus any escrow account funds.
- Title Company Calculates Prorations — Since Texas property taxes are paid in arrears, the title company figures out who owes what portion of the annual tax bill between you and the buyer.
- Closing Day Funds Are Applied — The buyer’s funds are used to pay off your mortgage in full, covering principal, interest, and any escrow shortage, while your escrow surplus is noted for refund.
- Servicer Receives Payoff and Closes Your Escrow Account — After closing, your servicer processes the payoff funds, officially closes your escrow account, and calculates your refund amount.
- Escrow Refund is Issued Within 20 Days — Federal regulations require your servicer to send your refund within 20 days of payoff, typically as a physical check mailed to the last address on file, though some servicers offer direct deposit for faster processing.
- Refund Amount Varies Based on Timing — Selling early in the year before property taxes are due means a larger refund, while selling in December after taxes have already been paid may result in very little coming back to you.
Following these steps ensures your escrow account is properly closed and your refund is processed smoothly from closing day to your final check.
Common Escrow Problems and Delays in Texas Home Sales
There are many issues that can further delay or complicate your escrow refund after the sale of your Texas home. Most typically, escrow issues arise due to risk of incomplete or outdated address records, so verify your address is current with your mortgage servicer before the sale closing to prevent any delivery delays regarding your Texas home escrow refund. Issues can arise if your mortgage loan was sold to another company, and so the new servicer covers the refund and mitigates any gaps in their records during the transfer. The Texas property tax prorate system also functions differently in different counties, resulting in delays or prorated payouts.
There are also issues regarding problems with insurance and servicing systems. Texas home sellers are particularly affected if their homeowners’ insurance is improperly canceled. System errors happen more often than homeowners expect to prevent the disbursement of the Texas home escrow refund. These issues mainly deal with insufficient management of the systems, updates, and staff training. This is a primary reason why it is important to stay proactive and follow up with your servicer throughout the process.
Texas Escrow Account Transfer Procedures When Refinancing
When refinancing in Texas, your old escrow account is closed, and a new one is opened with your new lender. Texas borrowers usually prefer to transfer the old account balance because it maintains the integrity of their schedule. Lenders are then motivated to have an adequate balance in the escrow account. Most Texas borrowers opt for the transfer rather than a refund to avoid disrupting their payment schedule, and the funds may not be available in the new escrow account. It is also federal law that the remaining funds be transferred to the new account as of the date of settlement.
When refinancing, timing determines the future balance of your escrow account. If your new lender opened the new account just before property taxes are due, you may have to spend your own money to balance the account. Rate and term refinances usually result in a positive balance, but cash-out refinances typically require extensive adjustments that may also result in negatively balancing the escrow account. Knowing the timing and nature of your loan can help you in preparing for the future balance of your escrow account.
When Do You Get Your Escrow Refund After Selling Your House in Texas
Each time you refinance in Texas, your old escrows are closed, and new ones are opened by the new lender. Federal regulations allow servicers to credit any remaining escrow funds toward the new escrow account, beginning on the settlement date of the new loan. Alternatively, you can receive the funds as a refund check. Most borrowing Texans choose to avoid the disruption of payment and ensure an adequate balance in their new escrow account by allowing the transfer of the remaining balance. Your new lender is obligated to reevaluate the new escrow balance in relation to the current goals and insurance. You cannot just assume that your old escrow account balance is adequate.
Refinancing immediately before the due date for property taxes can result in the unexpected cost of carrying the new escrow account balance to closing. Typically, a Rate and Term refinance will result in a more predictable and manageable escrow transition than a Cash Out refinance. Knowing the impact of timing, along with the type of loan, will allow you to avoid paying closing costs that were unexpected and out-of-pocket. If you are looking for a simpler alternative, cash home buyers in Texas and surrounding cities can offer a straightforward sale without the complexities of refinancing and escrow transitions.
FAQs
Do I Get My Escrow Money Back When I Sell My House?
When you sell your house in Texas, it is legal to be refunded any excess money in your escrow account. There are Federal laws that give your mortgage servicer no more than 20 business days to send you any remaining balance from your account after your loan is paid off. The amount refunded may vary based on proration of expenses, account balance, taxes, insurance, etc.
Do I Get an Escrow Refund Every Year?
Refunds are not always issued, but your servicer does consider your escrow account once every 12 months. If, after this analysis, there is found to be a surplus of $50 or more, the servicer must issue a refund or allow you to carry the surplus balance forward to your subsequent payments. Typically, homeowners in Texas find that their monthly payments are adjusted instead of receiving a refund check at the end of each year.
How Long Does Escrow Last in Texas?
In Texas, escrow accounts run throughout the entire term of your mortgage unless you waive the requirement. For mortgages with down payments below 20%, almost all lenders stipulate the escrow requirement for the full term of the loan. Some borrowers are able to remove the escrow requirement once they have built adequate equity in the home and have demonstrated a good payment history.
Is It Cheaper to Get Rid of Escrow?
Removing escrow can save you the typical two-month cushion amount. However, you will need to have the discipline to set aside money for large bills paid to the county. Escrow can be beneficial as it helps you cover large bills and saves you the trouble of having to manage your property tax payments and insurance. In Texas, many homeowners appreciate the comfort of escrow and the cushion it provides, especially considering the property tax bills that can be worth several thousand dollars.
Ready to sell your house and want to know exactly what happens to your escrow account? At Hilltop Home Buyer, our experts are here to guide you through every step of the process, from understanding your escrow refund to handling transfers and closing procedures. Do not leave money on the table or get caught off guard at closing. Contact us today and let our team give you the clarity and confidence you need to sell your Texas home the right way. Contact us now at (833) 962-2274 and get the expert escrow guidance you deserve.
