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. In Michigan, where property taxes vary widely by county, the escrow portion is often the largest swing in the total monthly payment between two similarly priced homes.
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 at once.
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.
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.
Related terms