Taxes, Insurance, and Other Info
Your Escrow Account
The Purpose of an Escrow Account
Escrow is an account that holds funds to pay yearly property taxes and mortgage insurance premiums. If funds for payment of taxes and insurance were required at closing, KHC is obligated, under the terms of your mortgage, to collect and maintain this account for real estate taxes, insurance, and certain other expenses connected with your property. The escrow provision cannot be waived. If your loan contract does not require an escrow account, you are responsible for paying your property taxes and insurance premiums.
How Your Account Works
Each mortgage payment includes an amount that is deposited to your escrow account. Usually the deposited amount represents 1/12 of the annual disbursement for your property taxes and insurance premiums. These property taxes and premiums are paid from the escrow account as they become due. In effect, an escrow account serves as a budget plan—making sure your funds are available as they are needed.
Real Estate Settlement Procedures Act (RESPA)
This is a federal guideline to assist mortgage-servicing organizations in the collection and distribution of escrow funds. RESPA regulates the maximum amount of escrow money that mortgage servicers may collect and hold in an escrow account. Mortgage servicers can collect additional escrow payments (up to two months’ worth) from borrowers to prevent escrow balances from dropping below a certain amount.
How Your Account Is Analyzed
Your escrow account is analyzed annually. For single-family loans, this analysis will be included with the new coupon book you receive at the beginning of each year. For multifamily loans, the analysis will be sent by mail. Sometimes there are changes in your monthly payment amount. These changes usually result from increases or decreases in the amount of insurance premiums, taxes, or assessments of your property.
The required monthly payment amount of your escrow account will be determined by the aggregate method. This method of accounting projects the balance of your account over the next year, based on the actual bills paid for escrow items during the previous 12 months. The projection includes your monthly escrow deposits, expected bills to be paid from your escrow account, the months in which we expect to pay them and the estimated monthly balance. Any shortage or surplus will be reflected on the statement, and your payment will be adjusted as necessary.
If increases in escrow items result in a shortage of required funds, repayment of an escrow shortage occurs with the next 12 payments (each payment will equal the shortage divided by 12). You can also pay this shortage in full or in part by check.
Escrow Surplus (applies to single-family loans only)
If your annual analysis shows surplus funds in your account and if this excess is greater than $50, we will send you a refund check. If the surplus is less than $50, we will decrease your next 12 monthly payments by 1/12 of the surplus amount.
The Amount You Pay
As a property owner, you are required to pay taxes on your property. The taxes you pay are in proportion to the value of your property. The exact tax amount is determined by the taxing authority. KHC has no control over the amount of your property tax.
If you have an escrow account and receive an original tax bill from any source, please write your KHC loan number on the bill and send immediately to KHC. Delays in sending the bill may result in penalties being added to your taxes. KHC will not be responsible for payment of penalties.
Property Tax Exemptions
To qualify for the homestead exemption, a person must be at least 65 years old during the tax period. Disabled persons, classified as totally disabled by any public or private retirement system and less than 65 years of age, must make an application on an annual basis. The property must be occupied by the owner and maintained by the taxpayer as a personal residence on the January 1st assessment date. Please contact your local county Property Valuation Administrator (PVA) to apply for the exemption. If you are approved, you will need to send KHC documentation from PVA indicating the new tax assessed value of the property.
Tax Bill Inquiries
If you have questions about your tax bill, contact your local taxing authority. They can explain the amount and how it was calculated. They can also give you a copy of your tax receipt and information about exemptions.
KHC will request that the taxing authority send your tax bill to us. After we receive the bill, it will be processed for payment. However, you should know that most taxing authorities mail the tax bills to the property owners. If you have questions about your property assessment, contact your local Property Valuation Administrator (PVA).
Homeowner’s Insurance Types:
Hazard and Flood Insurance
Having sufficient insurance is extremely important in protecting your property against disaster. The best protection you can have is adequate property insurance coverage. Basic coverage, such as fire and extended coverage or a homeowner’s policy on your property, is your responsibility to maintain at all times in an amount at least equal to the current principal balance. If your property is located in a designated flood area, adequate flood insurance coverage is also required.
Proof of Insurance
Your property must have insurance coverage at all times. You are responsible for making sure your renewal policy reaches our office before the expiration date of existing coverage. Failure to do so can result in incorrect premium payments along with additional insurance costs to protect your mortgage lender. If we do not receive proof of insurance, dwelling coverage only (not contents) will be purchased on your behalf and charged to your escrow account. You will be given prior written notice in this event. The coverage provided by this temporary insurance may be different and more expensive than your expired coverage. If we secure this special insurance for you, it can be canceled after you obtain a policy and provide proof of coverage to KHC.
Premium Notices and Invoices
Review any renewal policies or insurance invoices for your homeowner’s insurance. Make sure that it covers the correct property and provides the coverage and policy limits you desire.
Policies should contain a mortgage or loss payable clause naming as mortgagee: Kentucky Housing Corporation, P.O. Box 4150, Frankfort, Kentucky 40604-4150.
Verify that the correct amount has been billed. If there are any discrepancies, contact your insurance agent to make the necessary adjustments. Mail any renewal or replacement policies to the address above.
In some cases, your agent may send you a copy of the premium notice for your records. However, original invoices that request payment must be sent to KHC immediately if you have an escrow account.
Insurance Claims (for single-family loans only)
When there is damage to your property, notify your insurance agent immediately and contact our Insurance Claims staff at (800) 341-5622, extension 223. Settlement checks will be paid to you and KHC, and certain requirements must be fulfilled before any funds will be released to pay for repairs.
For multifamily loans, please contact extension 256, 346, or 432.
Changing Insurance Companies or Coverage
KHC must receive your written authorization to accept a new insurance policy. If you change insurance companies before your current policy expires, keep in mind that you may not receive a full refund from the former insurance company. Refunds must be sent to KHC to be deposited into your escrow account to prevent a shortage in your escrow account.
Private Mortgage Insurance (PMI)
On a Federal National Mortgage Association (Fannie Mae) or conventional loan, the lender usually requires the borrower to purchase private mortgage insurance (PMI) if the amount of the down payment is less than 20 percent of the purchase price. This insurance protects the lender in the event of default and foreclosure. Although the borrower is not protected, few, if any, lenders are willing to make loans that are so close to the value of the property without PMI. In some cases, when the loan balance gets below 80 percent (in some cases 75 percent) of the current value, and the loan is at least two years old, you may request early cancellation of PMI. Please contact our Customer Service staff at (800) 341-5622, extension 290, for more information.
On a loan insured by the Federal Housing Administration (FHA), mortgage insurance is required. This insurance protects the lender in the event of foreclosure on the property. For more information concerning FHA mortgage insurance premium, please contact customer service at (800) 341-5622, extension 290.
Veterans Administration (VA) loans are guaranteed by the Veterans Administration and do not require mortgage insurance.
Rural Housing Services (RHS) loans require mortgage guarantee insurance which protects the lender in the event of foreclosure on a property. For more information concerning RHS mortgage insurance premium, please contact customer service at (800) 341-5622, extension 290.
Life and Disability
KHC does not sell insurance. However, we can provide you with information about life or disability insurance products that you may wish to consider. For more information please call (800) 341-5622, extension 223.