First-Time Buyers

What Is an Escrow Account, and Do You Need One?

April 2026 · 4 min read

The word escrow gets used two ways in home buying, and it confuses almost everyone at first. Let us untangle it.

Escrow during the purchase

While you are buying, a neutral third party holds your earnest money and important documents until everyone meets the terms of the deal. That holding period is sometimes called being in escrow.

Escrow after you own the home

Many loans also set up an escrow account that bundles your property taxes and homeowners insurance into your monthly payment. The lender collects a little each month and pays those bills for you when they come due.

Why lenders like it

Your big tax and insurance bills get spread across 12 months
You are less likely to fall behind on those bills
The lender protects its investment in the home

Can you skip it

Sometimes. With enough equity or a larger down payment, some buyers can waive escrow and pay taxes and insurance themselves. That means lower monthly payments but bigger bills to budget for on your own.

If your payment jumps at renewal, it is usually escrow, not your rate. Taxes and insurance change over time, and your monthly amount adjusts to match.

This article is general education, not financial, legal, or tax advice, and not a commitment to lend. Loan programs, rates, and requirements vary by lender, county, and borrower and can change. Talk with a licensed loan officer about your specific situation.

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