How Does Your Escrow Account Work?

escrow account

The way I like to put it is your escrow account is a side account that holds the funds for your future property tax and homeowners insurance bills.  Every month that  you make a monthly payment a portion of your monthly payment goes towards funds needed in your escrow account to take care of property tax bill which usually comes out in October in Texas and the homeowners insurance bill that is usually due every year in the month when you closed on  your home.  When those bills are due the loan servicer will automatically withdraw your escrow funds from your escrow account and distribute them to the city/county tax authorities and your homeowners insurance company.   This way you don’t have to worry about paying them yourself every year.

You should have an escrow analysis done at the beginning of the year to see if you have a shortage or an overage depending if property taxes and homeowners insurance amounts have changed.

Typically an escrow account is required if you are not putting at least 20% down on a Conventional loan.

The initial escrow account is setup as part of your closing and you will usually have to have 2 months of homeowners insurance to start and several months of property taxes depending on the time of the year.

Feel free to contact me if you have any escrow questions.

Thank you for reading.

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