Jan. 16, 2007 - What is an Escrow Account?

• An escrow account is a neutral depository set up by your lender to collect (as a part of your monthly payment) for your homeowners insurance and real estate taxes, which are due annually. 
• You will pay one-twelfth of the annual amount of these bills each month with your regular mortgage payment.
• At the end of the year these bills will be paid on your behalf by the lender.
• With a 20% down payment you may not be required to have an escrow account. You will need to set aside funds to pay taxes and insurance when they are due.
• In Texas, interest is not paid on escrow accounts.
• Texas law prohibits lenders from holding excess money in escrow accounts.

Setting up the escrow account.

• At closing, about 3 months of taxes and insurance will be collected in advance to place in this account.
• This will cover the first month after closing, since you do not make a payment for this month, and the lender needs a couple of extra months in the account so that bills can be paid on time.
• At the end of each year, the escrow account is re-evaluated, reflecting any changes in your taxes and insurance. The monthly payment is reset for the following year. Any overage in the account will be refunded