I want to take real questions people are asking in more active subs, the questions that I believe are relevant for preparation, and answer them here.

I’m beginning the process of understanding what types of loans there are and negotiating factors for closing costs. But I still can’t wrap my head around escrow. What is it? Why can it be raised so dramatically after years have passed? Is there any way to prevent the dramatic raises in escrow? Thanks for your help!

Here's Oxford's verb definition of escrow (to escrow): To place in custody.

When referring to escrow, in most cases, it will mean property taxes and homeowners insurance.

homeowners insurance

The lender wants to make sure you are paying homeowners insurance because their money is on the line. If your home burns in a fire, and it isn't insured, there would be nothing to foreclose on. They would not be able to recover the money invested.

To make sure you are paying your homeowners insurance, they include it as part of your mortgage payment. It is a part of your 'escrow payment'

The other part of escrow are your property taxes.

property taxes

If you don't pay your property taxes, you will face penalties, a tax lien on your property, and lose your home through a tax sale or foreclosure.

The lender wants you to pay your taxes because a tax lien will disrupt everything.

A lien is an amount due on the home.

The difference between a first lien and a second lien is the order in which people get paid when the home sells.

If there's a 1st mortgage and a 2nd mortgage, the lender with the 1st mortgage is the 1st lien. That lender gets paid first.

The 2nd mortgage gets paid 2nd. If the sale of the home was done in foreclosure, there's a higher risk that the sales price was lower than the total amounts owed. The 2nd mortgage company might not get paid back what was due.

There's a risk being in 2nd lien position.

When there's a tax lien, it automatically gets placed in front of the 1st mortgage.

Lenders don't like that. So they want you to pay your property taxes.

To make sure you pay your property taxes, they make it a part of your mortgage payment. This is the other part of your escrow payment.

what happens with your escrow account?

Lenders collect your escrow payments in preparation for property tax due dates, and homeowners insurance renewal dates.

If your property taxes are due in January, they're trying to collect enough per month to cover that bill coming due.

Why can it be raised so dramatically after years have passed? Is there any way to prevent the dramatic raises in escrow?

Escrow payments can rise because your property tax bills might rise.

There's not much you can do besides fight against tax increase proposals in your city.

Homeowners insurance premiums can rise, but you can shop insurance companies each year to find a more affordable policy.