How to Put Money in Escrow

Escrow accounts are commonly used for property tax and homeowner’s insurance payments. Here’s a step-by-step guide on how to establish and deposit funds into an escrow account.

Part 1: Establishing Your Escrow Account

Step 1: Find Out if Your Lender Requires an Escrow Account

• Verify if your lender mandates an escrow account. Even if it’s not required, having one can help you budget for large annual expenses like property taxes and insurance premiums.
• Escrow accounts are usually required for federally guaranteed loans (e.g., VA or FHA loans) or conventional mortgages with a high loan-to-value ratio.

Step 2: Gather Information

• Provide your lender with accurate details about your homeowner’s insurance and property tax obligations.
• Double-check your lender’s calculations for the monthly escrow payments based on your annual tax and insurance bills.

Step 3: Notify the Appropriate Parties

• Ensure your property tax and insurance bills are sent directly to your lender if they manage your escrow account.

Part 2: Depositing Funds

Step 1: Determine the Minimum Balance

• Federal law limits the amount a lender can require you to keep in an escrow account, usually up to two months’ worth of payments as a reserve.

Step 2: Arrange to Make Monthly Deposits

• Your monthly mortgage payment typically includes an escrow component, which covers one-twelfth of your annual property taxes and insurance premiums.
• Regularly ensure your escrow account is funded adequately to avoid penalties or foreclosure risks.

Step 3: Check Your Account Regularly

• Monitor your escrow account balance and transactions online to stay updated and avoid any discrepancies.

Part 3: Analyzing Your Annual Statement

Step 1: Receive Your Annual Account Statement

• Federal law mandates that your lender provides an annual statement detailing all transactions and expected future activities in your escrow account.

Step 2: Review Totals from the State and Your Insurance Company

• Cross-check the amounts listed in your escrow statement against your property tax and insurance premium bills to ensure accuracy.
• If discrepancies arise, contact your insurance company or local taxing authority.

Step 3: Take Care of Any Shortage

• If there’s a shortage in your escrow account, you can either make a lump-sum payment or increase your monthly deposits to cover the shortfall.
• Be prepared for higher monthly payments if your property taxes or insurance premiums have increased.

By following these steps, you can ensure your escrow account is properly set up and maintained, providing peace of mind and financial stability.