Escrow Accounts

• An account which is maintained by the lender on behalf of their borrower for the payment of annual taxes and insurance.
• Lenders utilize escrow accounts to ensure that the loan collateral is protected from losses resulting from tax sales for unpaid taxes or lack of insurance coverage due to unpaid premiums.
• At closing, taxes for the current year are pro-rated, and the buyer pays up-front for a homeowners insurance policy for one year.
• The lender does not pay interest on the funds held in escrow, and the lender does not charge a fee to manage the account.
• Lenders analyze the escrow account annually to prevent holding too much money, and the amount a borrower pays into the account each month can change to avoid accumulating overages or shortages.
• The lender will generally calculate the tax escrow based on the tax bill used for prorations at closing.
• Insurance escrows are based upon the known guaranteed renewal premium. If a renewal premium is not known or guaranteed, the escrows will be based on the annual premiums for the current year.
• At closing, the settlement agent makes an initial deposit into the escrow account to set it up.