Costs & insurance
Escrow
An account your lender uses to collect and pay your property taxes and homeowners insurance on your behalf, spreading those bills across your monthly payment.
What does escrow mean?
Escrow has two meanings in a home purchase. Before closing, it's the neutral third-party holding of your earnest money and documents.
After closing, an escrow account is where your lender collects a slice of your property taxes and insurance each month, then pays those bills when due — so a big annual tax bill doesn't hit you all at once.
A Michigan example
On the $285,000 median home at Michigan's roughly 1.38% average tax rate, property taxes run near $3,933 a year. Add homeowners insurance, and your lender collects around $400 a month into escrow to cover both bills as they come due.
Common questions
What does an escrow account pay for?
Your property taxes and homeowners insurance. The lender collects a portion each month and pays the bills when due, so a big annual tax bill doesn't hit you all at once — smoothing two lumpy costs into your monthly payment.
Why did my escrow payment go up?
Usually because property taxes or insurance premiums rose. In Michigan, a tax reassessment after purchase — the taxable value uncapping — is a common cause, and the servicer adjusts your monthly collection to cover it.
Is an escrow account required?
Government loans generally require it; conventional loans may let you waive it with enough down payment, though many buyers keep it to smooth out big bills. Waiving it means budgeting for the tax and insurance bills yourself.
Related terms