What is the purpose of an escrow analysis performed by a lender?

The purpose of an escrow analysis performed by a lender is primarily to ensure that the correct amounts are collected for anticipated expenditures. During this process, the lender reviews the escrow account to verify that sufficient funds are being set aside to cover future property-related expenses, such as property taxes and homeowners insurance. This analysis helps to prevent shortfalls that could result in penalties or lapses in coverage, thereby protecting both the lender's and the borrower's interests. By ensuring that the necessary funds are being accumulated on an ongoing basis, lenders can provide peace of mind to borrowers regarding their financial obligations related to homeownership.

In contrast, determining the market value of a property pertains to property appraisal rather than escrow analysis, evaluating a borrower's creditworthiness is associated with the underwriting process, and finalizing the closing statement relates to the transactions occurring at the conclusion of the real estate deal. Thus, the focus of an escrow analysis distinctly lies in managing financial reserves for upcoming expenses.