Ever wonder why your monthly mortgage payment sometimes changes—even when your interest rate doesn’t? The answer usually lies in your escrow account. In this quick read, we break down what escrow really is, how it protects you, and why understanding it can save you from surprises down the road. 

When a homebuyer closes on their new home, an escrow account is typically set up to manage property taxes and homeowner’s insurance. Each month, a portion of the mortgage payment is deposited into the escrow account. When those bills come due, the mortgage servicer pays them directly, saving the homeowner from large lump-sum payments. 

Escrow makes things more manageable and ensures these important bills are paid on time. 

Every year, the mortgage servicer performs an escrow analysis to determine if the monthly contributions are enough to cover the costs. If there’s a rise in property taxes or insurance premiums, the account may fall short - even if there’s still money in it. This can result in a monthly payment increase. 

We also make sure clients understand that: 

• New construction homes often see escrow shortages in year two due to underestimated tax assessments in year one. 

• Buyers can anticipate shortages by reviewing their annual property tax notices and insurance renewals. 

• In some cases, buyers may be eligible to waive escrow (typically with conventional or VA loans), but that option requires a higher down payment or stronger credit. FHA loans require escrow accounts. 

Have questions about your escrow account or anything else in the homebuying process? Our experienced mortgage team is here to guide you every step of the way. Let’s make homeownership feel a little less overwhelming and a lot more possible. Connect with us today to get started.