What is Included in Escrow Account, Including Amounts (# of months) at Closing?

An escrow account is a common part of the home buying process, but many people may not fully understand what it entails. In simple terms, an escrow account is a separate account held by a third party to pay for property taxes and insurance on a home. The homebuyer pays a certain amount each month towards these expenses, which are then paid out of the escrow account when they come due. The amount collected is included in the monthly mortgage payment made by the client, and it is portioned out by the mortgage servicer to the escrow account.

At closing, the lender will collect a certain amount of money for the escrow account based on the month the loan is funded. The amount collected is to cover expenses such as taxes and insurance payments due for a certain number of months. This amount can vary depending on the time of year and the specific requirements of the lender, but it is typically around 2-3 months’ worth of payments.

For example, if your property taxes are $2,000 per year and your insurance is $1,000 per year, you would need to deposit around $500-$750 into the escrow account at closing to cover these expenses for the first few months. This money is held by the lender and used to pay these bills when they come due.

Having an escrow account can provide peace of mind for homeowners, knowing that these important expenses are being taken care of each month. It also helps to evenly spread out these costs throughout the year, rather than having to come up with a large lump sum payment when they are due.

An escrow account is a vital part of the home buying process that helps ensure that property taxes and insurance are paid on time. The amount required at closing can vary, but it is typically around 2-3 months’ worth of payments. This account provides a convenient way to manage these expenses and can provide peace of mind for homeowners.

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