What Is Escrow Account?
Escrow Account: An account your servicer uses to collect and pay your property taxes and insurance.
Also called: impound account
An escrow account, or impound account, is managed by your servicer. Each month, part of your payment goes into it, and the servicer pays your property tax and insurance bills when they're due.
How it starts
At closing, you fund the account with a starting balance, usually a few months of taxes and insurance, as part of your prepaid items.
Is it required?
- FHA, VA and USDA loans require escrow
- Conventional loans require it with less than 20% down in most cases, and can waive it otherwise, sometimes for a small fee
- Lenders must collect escrow for flood insurance in most cases
The cushion
Federal rules let servicers keep a cushion of up to two months of escrow payments.
Good to know
Each year your servicer runs an escrow analysis, which can raise or lower your payment.