Escrow Computation

By reviewing the most recent payments of each escrowed item (taxes, insurance, etc.), a monthly escrow deposit is determined. 


The monthly escrow deposit is calculated by dividing the tax and insurance payments by twelve. 


When creating the calculation and if multiple transactions occur during the month, it is important to add the credit of the escrow deposit first and then add the escrow disbursement. 


This provides the borrower with the most accurate calculation.


Calculation Steps:

  1. List all the payment amounts for items that will be paid out of the escrow account for the next twelve months. 
  2. Divide this total amount by twelve (12) to determine the monthly deposit. 
    • Please note the monthly PMI or MIP should be added to this amount after the monthly calculations is determined
  3. Create a trial running balance for the next twelve (12) months listing all payments into (deposits) the escrow account and all payments out (disbursements) of the escrow account when the items are anticipated to be paid. 
  4. Obtain the lowest balance amount (actual low point balance). 
  5. Add any cushion to determine the required amount (allowable low point balance). 
    • The cushion may be a maximum of 1/6th of the total escrow deposits charges. 
    • Do not use the MIP or PMI premium when calculating the cushion.
  6. Compare the actual low point balance to the allowable low point balance
    • If there are more funds than required, there is an escrow overage. 
    • If there are not enough funds, there is an escrow shortage. 


Initial Escrow Analysis (No Cushion)

Initial Escrow Deposit of $750

Month

Deposit

Disbursement

Projected Balance

Required Balance

.

.

.



June

150.00

.

150.00


July

150.00

.

300.00


August

150.00

.

450.00


September

150.00

- 600.00

0.00


October

150.00

.

150.00


November

150.00

.

300.00


December

150.00

- 1200.00

-750

0.00

January

150.00

.

-600.00


February

150.00

.

-450.00


March

150.00

.

-300.00


April

150.00

.

-150.00


May

150.00

.

0




Annual Escrow Analysis (2 Month Cushion)

Escrow shortage of $550.00

Month

Deposit

Disbursement

Projected Balance

Required Balance

.

.

.

500.00

1050.00

June

150.00

.

650.00

1200.00

July

150.00

.

800.00

1350.00

August

150.00

.

950.00

1500.00

September

150.00

- 600.00

500.00

1050.00

October

150.00

.

650.00

1200.00

November

150.00

.

800.00

1350.00

December

150.00

- 1200.00

-250.00

300.00

January

150.00

.

-100.00

450.00

February

150.00

.

50.00

600.00

March

150.00

.

200.00

750.00

April

150.00

.

350.00

900.00

May

150.00

.

500.00

1050.00



Annual Escrow Analysis (2 Month Cushion)

Escrow overage of $100.00

Month

Deposit

Disbursement

Projected Balance

Required Balance

.

.

.

1150.00

1050.00

June

150.00

.

1300.00

1200.00

July

150.00

.

1450.00

1350.00

August

150.00

.

1600.00

1500.00

September

150.00

- 600.00

1150.00

1050.00

October

150.00

.

1300.00

1200.00

November

150.00

.

1450.00

1350.00

December

150.00

- 1200.00

400.00

300.00

January

150.00

.

550.00

450.00

February

150.00

.

700.00

600.00

March

150.00

.

850.00

750.00

April

150.00

.

1000.00

900.00

May

150.00

.

1150.00

1050.00


Note: Escrow Analysis is calculated on anticipated amounts, based on last tax and insurance disbursements made or estimated amounts provided.  If the actual tax bill or insurance premium is higher or lower than the anticipated amount, there may be a shortage or an overage in the escrow account the following year.