Mortgage Escrow Setup Process

Introduction

If your mortgage includes an escrow account, the servicer collects a portion of your annual property taxes and homeowner's insurance with each monthly payment, holds the funds, and pays the bills when due. The escrow account is typically established at closing, and you pay initial escrow deposits as part of your closing costs.

At Closing

Your Closing Disclosure shows initial escrow deposits—funds to establish the account and build a cushion for upcoming tax and insurance payments. These are part of your cash to close. The servicer receives these funds and sets up the escrow account when the loan is boarded.

Monthly Escrow Portion

Your monthly payment includes an escrow portion—typically one-twelfth of your estimated annual taxes and insurance. The servicer holds these funds and pays your property taxes and homeowner's insurance when they are due. This spreads the cost over 12 months instead of large lump sums.

For more on how escrow works, see What Is Escrow?

Escrow Analysis

The servicer must conduct an escrow analysis at least once a year. If taxes or insurance have increased, your monthly escrow payment may increase. If there is a surplus, you may receive a refund. You have the right to receive an escrow account statement.

Frequently Asked Questions

When is my escrow account set up?

If your loan requires an escrow account, it is typically set up at or before closing. You pay initial escrow funds at closing, and your monthly payment includes an escrow portion for taxes and insurance. The servicer manages the account after closing.

What are initial escrow deposits?

At closing, you may pay initial escrow deposits—funds to establish a cushion for upcoming tax and insurance payments. The amount is shown on your Closing Disclosure. The servicer holds these funds and pays your taxes and insurance when due.

Can my escrow payment change?

Yes. The servicer conducts an escrow analysis at least once a year. If taxes or insurance increase, your monthly escrow payment may increase. If there is a surplus, you may receive a refund or it may be applied to future payments.

Do I have to have an escrow account?

It depends on your loan type and LTV. Many loans require escrow when you put down less than 20%. Some borrowers can waive escrow once they reach a certain LTV, depending on the lender and loan program.