real estate

Pros and cons: Saving in an escrow account

But Chatham says it's not worth it to invest money for the short term and handle taxes and insurance payments yourself. Putting $3,000 into the market might only earn you $300 in a year. But there's a big risk to bear, Chatham says. "You can make 10 percent, but you can also lose it," he says.

Will it make a difference with my bank?

Setting up an escrow account with your lender could result in you being offered a lower interest rate on your loan, which can bring substantial savings over the long haul, Chatham says.

But homebuyers also need to bring money to the closing table to fund the escrow account. Depending on the month you close and the month the tax and insurance bills are due, it could add up to a hefty sum.

Whose responsibility is it?

If you have an escrow account, it's the lender's responsibility to pay all your tax bills in a timely fashion. Hellman says in some places, such as Texas, customers may have to pay separate tax bills to the county, school district, and water and sewer districts rather than having them rolled together into one county tax bill.

The mortgage company must track down all the jurisdictions where your taxes must be paid. If the lender drops the ball and misses a payment, it's their responsibility to pay penalties, Hellman says.

While there are horror stories of lenders failing to make insurance and tax payments, Hellman says it rarely occurs.

But if you like the thought of controlling your own financial matters, it will fall on you entirely to make sure taxes and insurance are paid on time.

If you don't pay your insurance promptly, coverage could lapse, and that could result in your insurance company either charging you a higher amount or declining to renew your policy, Hellman says.

There also can be major problems if you forget to pay your taxes, says Chantay Bridges, a Realtor with Clear Choice Realty & Associates in Los Angeles. You could wind up with a tax lien on your home, and it will be impossible to sell your home until it's cleared up.

Not paying those items out of pocket means fewer payments you'll have to make and not having to worry they were received on time, Bridges says. Once you consider the pros and cons of each scenario, then you can decide what's right for you.

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