An escrow account is an account held by your mortgage servicer to easily manage your property taxes and insurance. You pay your property taxes on your primary residence every 6 months and homeowners insurance once a year. When making your mortgage payment part of your payment goes toward your mortgage to pay your principal and interest and the other part goes into your escrow accounts for property taxes and insurance premiums (like homeowners insurance, mortgage insurance, or flood insurance). When your homeowners insurance and property taxes become due… this money comes out of your escrow account.
An escrow account essentially ensures that the taxes and insurance will be paid on time. Taxes and insurance do change over time so once a year you are subject to a yearly escrow for any changes to property taxes and homeowners insurance. For these unexpected reasons, we need to keep a minimum balance in the escrow account not to exceed 2 months of escrow payments.
Under certain circumstances you are allowed to waive an escrow for taxes and insurance and pay them in lump sums when they are due. Typically you must have at least an 80% LTV and there can be fees due for the additional risk to the lender.
NMLS ID 1558861