What Exactly Are Escrow Accounts?

Escrow accounts, while not always mandatory, are a great way to ensure that there’s a second set of eyes on your mortgage. An escrow account serves as a way to protect the banks and lenders, by insuring that your property taxes get paid, preventing a lien on the house.

What's the Purpose of an Escrow Account?

Essentially, your lender has provided you with money to purchase the property. Until you own the house outright, the bank owns the house, which means that if you default on a mortgage payment, the bank starts to eat money. Having an account like this puts a bit less of a burden on you, while easing the risk the bank is taking.

How Does this Benefit the Buyer?

Think of it as a way to “pre-pay” your property taxes. All you worry about is getting the payment made into the account and you’re good to go. Until you have enough paid into the property (equity), you may be required to keep the escrow account. You may eventually be able to cancel it, depending on your lender’s requirements and your ability to pay the tax on time.

Do I Need to Have an Escrow Account?

This type of account is not always required, and the details vary from state-to-state and lender-to-lender. To get more information, ask a trusted lender in your area.

Summary

Escrow is a sort of insurance, in place by your lender, for property tax payments. It serves both you and the bank. You'll need to check with a local lender to find out whether this is required for you, before you think about opting out.