"Escrow" means two different things in a mortgage. During a purchase, an escrow company holds money and documents until everything is ready to close. After closing, an escrow account is how your servicer collects and pays your property taxes and insurance.
Escrow During the Purchase
In California and some other states, a neutral escrow company manages the closing. It holds your earnest money deposit, collects documents and signatures, receives the loan funds, and pays everyone once all conditions are met. In other states, a title company or attorney plays this role.
Your Escrow Account After Closing
With an escrow account, your monthly payment includes principal and interest plus one-twelfth of your yearly property taxes and homeowners insurance. Your servicer holds that money and pays the bills when they're due.
- At closing, you'll make an initial deposit into the account.
- Each year, the servicer runs an escrow analysis. If taxes or insurance went up, your payment rises. If there's a surplus, you may get a refund.
- Federal rules limit how much extra cushion a servicer can hold.
Can You Skip the Escrow Account?
Sometimes. Many conventional loans allow you to waive escrow with enough equity, sometimes for a small pricing adjustment. FHA and VA loans generally require one. If you waive it, you pay taxes and insurance yourself, so budget for those large bills.
Why Your Payment Changed
If your payment rises without a rate change, it's usually escrow: a higher tax bill (common after purchase, when the property is reassessed) or a higher insurance premium.
Mortgage Escrow FAQ
Why did my mortgage payment go up?
Usually because property taxes or insurance rose, which increases the escrow part of your payment.
Can I pay my own taxes and insurance?
Sometimes, by waiving escrow on a conventional loan with enough equity. FHA and VA loans usually require escrow.
Do DSCR loans have escrow?
Often yes. Some lenders let you waive it with strong credit and lower LTV.
In the financial industry since 2015. Licensed loan officer in Los Angeles, California. NMLS #1493724, with UTM Financial, LLC (NMLS #2591548). More about Ivan
This article is general education, not financial, tax, or legal advice. Loan guidelines vary by lender and change often. Not a commitment to lend.