What is an escrow account? How does it work?
In short, an escrow account is put in place during a home purchase to keep the recurring costs associated with homeownership.
When you use a mortgage loan to buy a home and you put down less than 20%, federal law requires that there be an escrow account involved in the transaction. Escrow accounts are also required whenever you use an FHA or VA loan to purchase a home.
Essentially, you “escrow” the future tax and insurance payments of that home. One-twelfth of your tax bill is added to your monthly mortgage payment and held in the escrow account so that when your tax bill is due, the mortgage company has enough funds to pay it. The same goes for your insurance bill.
The due dates for each payment don’t always align—your insurance payment is typically due on the anniversary of your mortgage, and your property tax payment is typically due in December.
If you have any other questions about escrow accounts and how they function, don’t hesitate to get in touch with me. I’d be happy to speak with you.