A hopeful couple smiling in their new home.

Why Did My Nevada Mortgage Payment Go Up? Escrow Explained

Q: What is a mortgage escrow account and how does it work?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: Why did my monthly mortgage payment suddenly increase so much?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: What are the most common reasons for a large escrow shortage?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: What are my options for paying back an escrow shortage?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: Can I do anything if I believe my property tax assessment is too high?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: How can I find cheaper homeowners insurance to lower my escrow payment?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: Does refinancing my mortgage get rid of an escrow shortage?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

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TL;DR

A sudden, sharp increase in your monthly mortgage payment is almost always caused by an escrow account shortage. This typically happens for two main reasons:

Your annual property taxes were reassessed at a higher value, which is common with new construction.
Your homeowners insurance premium increased.

Each year, your lender performs an analysis and adjusts your payment to cover both the previous year's shortage and the newly projected higher costs. The article explains your options, which include paying the shortage in a lump sum, appealing your tax assessment, or finding more affordable insurance to lower future payments.

What is a mortgage escrow account and how does it work?

An escrow account, sometimes called an impound account, is a special savings account managed by your mortgage lender. It’s designed to hold funds to pay your estimated annual property taxes and homeowners insurance premiums on your behalf. This system simplifies homeownership by bundling these major expenses into your single monthly mortgage payment.

Your total monthly payment is often referred to by the acronym PITI:

Principal: The portion that pays down your loan balance.
Interest: The cost of borrowing the money.
Taxes: One-twelfth of your annual property tax bill.
Insurance: One-twelfth of your annual homeowners insurance premium.

Each month, the 'T' and 'I' portions of your payment are deposited into your escrow account. When your tax and insurance bills are due, your lender pays them for you using the money accumulated in that account. By law, lenders can also keep a cushion—typically equal to two months of escrow payments—to cover any unexpected increases in costs.

How an Escrow Analysis Works

Once a year, your lender performs an 'escrow analysis'. They review what they paid out for taxes and insurance over the last 12 months and project the costs for the next 12 months. They compare this to what you actually paid into the account.

Surplus: If you paid in more than what was needed, your lender must send you a refund check if the surplus is $50 or more. If it's less than $50, they may apply it to your future escrow payments.
Shortage: If the taxes or insurance were higher than anticipated, you have a shortage. This shortage, plus any projected increase for the coming year, will be factored into your new monthly payment.

Why was my initial payment estimate so much lower?

This is one of the most common and frustrating surprises for new homeowners, particularly for those who purchased new construction homes in growing areas like Las Vegas or Henderson. The initial payment quoted at closing is only an estimate based on the information available at that time.

A homeowner reviewing their mortgage statement with a calculator

There are two primary reasons for a significant discrepancy:

Property Tax Reassessment: When you buy a newly built home, the initial property taxes are often based on the value of the vacant land before the house was constructed. After your first year, the county assessor's office, such as the Clark County Assessor, will reassess the property's value to include the new structure. This can cause the tax bill to double, triple, or more, leading to a severe escrow shortage.
Changing Insurance Premiums: The initial homeowners insurance quote might be a promotional rate, or market-wide rates could increase due to factors like inflation or regional risk assessments. The premium for the second year could be significantly higher, contributing to the escrow shortage.

For example, your initial escrow was based on a $1,500 annual tax bill for the land. After construction, your Reno home is reassessed, and the new tax bill is $4,500. That's a $3,000 difference that your escrow account wasn't prepared for, resulting in a shortage.

Can I fight a massive property tax reassessment?

Yes, you have the right to appeal your property tax assessment in Nevada if you believe the county has overvalued your home. This is a formal process separate from your mortgage lender.

To be successful, you must provide evidence that your home's assessed value is higher than its actual market value. Strong evidence includes:

Comparable Sales: Find recent sales of similar homes in your immediate neighborhood that sold for less than your assessed value. Your real estate agent can help pull this data.
Factual Errors: Check the assessor's record for your property. Do they list the correct square footage, number of bedrooms/bathrooms, and lot size? Any errors can be grounds for an appeal.
Recent Appraisal: If you recently had an appraisal done (perhaps for a refinance), and it valued your home lower than the county's assessment, this can be powerful evidence.

In Nevada, each county has its own Board of Equalization. For homeowners in Las Vegas, you would file an appeal with the Clark County Board of Equalization. For those in Reno, it's the Washoe County Board of Equalization. Pay close attention to the strict appeal deadlines, which are typically in January. The data, information, or policy mentioned here may vary over time.

What are my options if I cannot afford the escrow shortage payment?

When your annual escrow analysis reveals a shortage, your lender will present you with options. The payment increase you see is made of two parts: (1) repaying the previous year's shortage and (2) funding the account for the next year's higher projected costs.

A person considering their financial options for an escrow shortage

You generally have two ways to handle the shortage:

Pay the Shortage in a Lump Sum: You can write a check to your lender for the full shortage amount. Your monthly mortgage payment will still increase to cover the higher tax and insurance costs for the upcoming year, but it won't include the portion meant to repay the shortage. This results in a lower monthly payment compared to the second option.
- Example: If your shortage is $1,200 and your new projected escrow is $400/month, you can pay the $1,200 upfront. Your new monthly escrow payment will be just the $400.
Spread the Shortage Over 12 Months: This is the default option. The lender will divide the shortage by 12 and add that amount to your new monthly mortgage payment. This avoids a large upfront cost but results in the highest possible monthly payment increase.
- Example: Using the same $1,200 shortage, the lender adds $100/month ($1,200 / 12) to your new $400 escrow payment. Your total monthly escrow payment becomes $500 for the next year.

If the new payment creates a genuine financial hardship, contact your mortgage servicer immediately. They may have workout options or temporary forbearance plans available, though this is typically reserved for more severe situations. The data, information, or policy mentioned here may vary over time.

How can I shop for cheaper homeowners insurance to lower my payment?

Actively managing your homeowners insurance cost is one of the best ways to control your PITI payment. While you are responsible for choosing your insurance provider at closing, you are not obligated to stay with them for the life of the loan.

Here are steps to find a more affordable policy:

Get Multiple Quotes: Contact an independent insurance agent who can pull quotes from a dozen or more carriers at once. You can also get quotes directly from major insurers online.
Bundle Your Policies: Most companies offer significant discounts if you bundle your home and auto insurance together.
Increase Your Deductible: Raising your deductible from, say, $1,000 to $2,500 can substantially lower your annual premium. Just be sure you have enough in savings to cover the higher deductible if you need to file a claim.
Ask About Discounts: Inquire about discounts for security systems, smoke detectors, new roofs, or being claim-free.

Once you find a better policy, the process is simple. You sign up for the new policy, and then you must notify your mortgage lender of the change. Your new insurance agent can usually help with this. The lender will then update your escrow account with the new, lower premium information, which will be reflected in your next escrow analysis.

Does refinancing my mortgage solve an escrow shortage problem?

Refinancing does not directly erase an escrow shortage. The shortage is a debt you owe to your old loan servicer, and it must be settled. When you refinance, the payoff amount for your old loan will include the principal balance plus any outstanding escrow shortage.

However, refinancing can be an indirect solution. If current interest rates are significantly lower than your existing rate, a refinance could lower the principal and interest portion of your monthly payment. This reduction might be enough to offset or even cancel out the increase from your escrow adjustment, keeping your total PITI payment manageable.

Think of it this way: refinancing addresses the 'P' and 'I' in PITI, while the escrow issue is with the 'T' and 'I'. It’s not a direct fix for the escrow problem, but it can be a tool to lower your overall housing expense if the financial math makes sense.

How do I request to have my escrow account removed?

Some homeowners prefer to manage their own tax and insurance payments. To do this, you must request an 'escrow waiver' from your lender. Lenders are not required to grant this request and have specific criteria you must meet.

Typically, you must have:

Sufficient Equity: Most lenders require a loan-to-value (LTV) ratio of 80% or less, meaning you have at least 20% equity in your home.
A Good Payment History: You must have a record of on-time mortgage payments, usually for at least the last 12 months.
A Conventional Loan: Government-backed loans have different rules. FHA loans require an escrow account for the life of the loan. While the VA does not require escrow accounts, most lenders do as a condition of providing a VA loan.

The data, information, or policy mentioned here may vary over time.

The biggest pro of removing escrow is control. The biggest con is responsibility. You will need to save thousands of dollars on your own and ensure you pay very large tax and insurance bills on time, as failing to do so can put your home at risk.

What steps can I take to prevent this from happening again?

While you can't control tax rates or insurance markets, you can be proactive to avoid future payment shock.

Monitor Your Property Value: Keep an eye on the assessed values in your neighborhood. If you see them rising, you can anticipate a future tax increase. Websites for the Clark County and Washoe County assessors are public resources.
Shop Insurance Annually: Don't wait for the renewal notice. Start shopping for new homeowners insurance 45-60 days before your current policy expires to give yourself time to switch if you find a better deal.
Make Extra Escrow Payments: If you have extra cash, you can make additional payments directly to your escrow account throughout the year. This builds up your cushion and can help absorb a future increase without creating a shortage.
Read Your Statements: Don't just file away your annual escrow analysis. Open it and review the numbers. If something doesn't look right, call your lender immediately to ask for an explanation. Understanding your escrow account is key to managing your home finances. If you're facing a payment increase and want to explore all your mortgage options, a strategic review can provide clarity and peace of mind.

If an unexpected escrow shortage has made your mortgage payment unmanageable, it's time to explore your options. A strategic review of your mortgage could reveal a better path forward. Apply now to see how we can help you regain control and find financial peace of mind.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.