A reader asks, “I am trying to cancel my escrow acct. with (my lender) due to them selling my Mortgage loan to an undesirable finance company called (name deleted). I was informed that all FHA loans are required to have an Escrow account. Please inform me of my rights.”
FHA loan rules do not require an escrow account in every case, but your lender might. According to the FHA/HUD official site, we find the following on the page titled HUD RESPA FAQs. The Real Estate Settlement Procedures Act, also known as RESPA, governs escrow accounts for home loans.
Under RESPA there is no requirement for escrow. From the HUD official site:
“Does RESPA require borrowers to maintain an escrow account?
NO. It is the lender’s decision whether the borrower must maintain an escrow account for the purpose of paying taxes and other items. The HUD regulations only limit the maximum amount that a lender can require a borrower to maintain in an account.”
However, under FHA loan rules there are circumstances where the lender is REQUIRED to establish an escrow account. Regardless of the fact that escrow is not required in all cases by FHA loan rules, the lender’s standards may require it.
The reader question doesn’t specify whether the lender was trying to imply FHA loan rules require escrow (which may be true depending on circumstances) or if the lender’s own standards dictate the use of escrow.
In cases where there’s a dispute about escrow, borrowers are encouraged to call the FHA directly at 1-800 CALL FHA to get clarification on FHA rules. Keep in mind that lender standards will apply if they are applied in accordance with federal law. Just because the FHA does not require escrow doesn’t mean the lender is forbidden from doing so.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.