Money in escrow is "dead money". It doesn’t earn interest for you and it doesn’t reduce your mortgage interest payments. Therefore every cent in your escrow account is costing you money. Make sure there is no more tied up in escrow than there needs to be!

Here is a brief summary of what lenders can and cannot do regarding escrow. I'll also explain how to check your own escrow account to make sure you are not paying too much.

State laws vary; you should consult your own attorney to determine what your local laws allow.

The way lenders handle escrow is regulated by Federal Real Estate Settlement Procedures Act, which applies to all "federally related mortgage loans".

Unless local law says otherwise, at settlement lender can require a borrower to deposit funds in an escrow account set up for payment of taxes or insurance premiums. The sum deposited cannot exceed actual amount of taxes and premiums, plus one-sixth of their estimated total.

If taxes come due in January and you are settling in July, your first month's payment will be due Sept. 1. For September, October, November and December, you will make four months' escrow payments. Since lender will require a full year's payment in January, and at that time only four months' payments will be in escrow, lender can escrow eight months at settlement, plus one-sixth of total amount, which amounts to an additional two months' worth of escrow.

Thus, at settlement, do not be surprised if lender requires you to pay 10 months' tax payments into escrow. These funds are held by lender and paid when taxes come due.

The rules apply until you pay off your loan. In other words, lender can hold two additional months' escrow, so that if you are delinquent in one or two monthly payments, lender will still have sufficient funds.

At least once a year, lender that services your loan must send you a statement clearly itemizing "the amount of borrower's current monthly payment, portion of monthly payment being placed in escrow account, total amount paid into escrow account during period, total amount paid out of escrow account during period for taxes, insurance premiums . . . (as separately identified) and balance in escrow account at conclusion of period."

When you receive this statement, you should review it carefully. Confirm with your taxing authority and your insurance company exactly when payment is due and amount of payment. Use a calculator to determine whether lender has properly calculated amount of escrow. Congressional testimony has uncovered many errors made by mortgage lenders.

Question 1.

My wife and I are planning a new home. We intend approaching a builder or two in this area, and I plan on asking them these questions.

My wife is very adept at planning and researching. Under what circumstances do you recommend we hire an architect? And Why or why not? (This is not a loaded question. I am not an architect and neither is my brother-in-law. We would prefer to construct without hiring an architect.) Reply

It would depend on your budget. Some architects in US charge as much as 10% of budget of a home to do plans. Master Builders, as opposed to "Local Builder Bob," don't like to place their clients in a position of hiring an architect until they really need one. The best advice our clients get is to prioritize their actions as follows:

First: Get loan;

Second: Get land;

Third: Get Interior Designer;

Forth: Get architect.

In our case, we have in-house architects and structural engineers.

It is best to hire an Interior Designer (ASID) and have them work with you to design floor plan, which is uniquely suited for how you and your family use space and style you like.

Armed with this floor plan you would then send it to us and we would create your architect blueprints from it.

Blueprints are part of quote we provide our clients. This way they don't have 'Sticker Shock' from a local architect.

Question 2.

How much price and quality research re materials can we expect our builder to do or to have done?

Reply

This depends on builder you hire. For most part, you can't expect too much. Most builders work in their comfort zone.

They use materials they're used to working with. They usually won't try something else unless insisted upon by home buyer or developer. And, then they usually hire an outside source to do this.

As Master Builders, we use current technology and one of reasons why we are both profitable and successful is that we keep abreast to new technology and want our buyers and developers to have this benefit in their homes.

Question 3.

Is it reasonable for us to ask our builder to identify his subcontractors and allow us to talk with primary subs before we enter into a contract with him (and after)?

Reply

It may appear to be reasonable from your point of view, but, not very realistic. Subs come in and out of a job site. If one is not available another one is called in.

Once you have signed a Contract with a builder, he is your 'one point of contact.' The subcontractors are his subs - not yours. Remember you have engaged him for his building management expertise to complete job on time and on cost.

That means he must have full control and so by you talking to subs directly you are creating confusion. You can't have two bosses on a job.