What is an escrow account?

An escrow account is a type of account set up by a mortgage company to hold money for a borrower in order to pay the borrower’s taxes, insurance, or other expenses related to the mortgage. In Virginia, many lenders require borrowers to open an escrow account, which is kept separate from other accounts and is administered by a third-party servicer. The money held in an escrow account is used to cover expenses such as property taxes and homeowners insurance. Every month, the borrower makes an escrow payment, which goes into the escrow account and is used to pay those expenses when they come due. The escrow account also helps the lender ensure that the borrower pays these expenses. Once the borrower’s taxes and insurance payments are due, the lender uses the money held in the escrow account to pay them. The lender then replenishes the escrow account, as needed, to cover the next set of payments. This helps to protect the lender from default in case the borrower does not make the payment on time. In Virginia, escrow accounts are regulated by the state’s Division of Financial Institutions. The regulations require lenders to provide borrowers with an annual escrow statement and to limit the amount of money held in the account to two times the estimated annual expenses. All escrow accounts must also be insured by the Federal Deposit Insurance Corporation (FDIC).

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What is an escrow account?

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