Home Buying?

Question by Ricky: Home Buying?
So I’m new at this home buying stuff – what’s an “escrow account”?

Best answer:

If you choose to have escrow or your mortgage company requires it. It’s basically a savings account they put your money into to save for things like PMI (mortgage insurance if you borrow more than 80% of the value of the home most mortgage companies require it and it is really expensive so do all you can to avoid it like the plague) and taxes.

So usually they just tell you that your mortgage payment is $ 1200/month…probably $ 275 of that is escrow. They collect in advance to pay your property taxes…they are not allowed to collect more than 20% more worth of taxes than your estimated tax bill…they usually have a little extra in the account because taxes go up every year and they don’t want to get caught short.

The bad thing about escrow is that you are giving your mortgage company an interest free loan on your money. They are going to make money on your escrow payments.  My feeling is why shoud I let them make money on my money if I could do it myself. If I put the $ 275/month in a money market account I am earning 5% interest on that money…if I send it to the mortgage company they are making that 5%.

The good thing about escrow is that if you are really bad at saving you don’t have to worry about your taxes being paid. They are doing it for you. You just send your payments every month and they take care of the rest.

So you need to decide if you can save the money on your own (you don’t get a choice on escrow if they require PMI they will pay that for you, you can’t do it yourself).

Good Luck!

What do you think? Answer below!

About Kristofer Nance

Kristofer Nance, Real Estate Broker with Nance & Associates, Realtors in Fredericksburg VA
Owner/Agent of Nance & Associates, Insurance.


  1. Escrow is the neutral party in the transaction, that usually makes the payoffs of the current mortgage, holds the deposit and down payment.

  2. escrow is an account that is like a piggy you can not touch == when you make a payment part of it will be placed in the piggy so when property taxes and other bill like insurance comes do the head pig will write a check to them!!!

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