Escrow Accounts for Taxes and Insurance: What Homeowners Need To Know

Escrow is one of those terms that gets thrown around constantly in the mortgage world, but most borrowers only have a hazy understanding of what it really means. In this context, we’re not talking about the title company at closing. We’re talking specifically about escrow accounts for property taxes and homeowners insurance—the ongoing accounts that affect your monthly mortgage payment long after you’ve moved into your home.

If you’re buying in Texas, refinancing in Florida, or closing on a jumbo loan in California, escrow for taxes and insurance will almost certainly be part of the equation. It’s one of the most important tools lenders use to protect themselves and one of the most convenient (and sometimes frustrating) parts of homeownership for borrowers.

Escrow Accounts in a Home Purchase

When you purchase a home, your lender will likely establish an escrow account right alongside your new mortgage. Each month, part of your mortgage payment is allocated to cover property taxes and insurance premiums. Instead of you cutting one or two massive checks a year, your lender spreads the cost out evenly and pays the bills when they come due. This ensures that taxes are paid on time (avoiding liens on the property) and that insurance coverage never lapses (keeping the collateral for the loan (your house) safe).

In high-tax states like Texas or Illinois, escrow balances can be substantial. California’s semiannual tax schedule means the amount collected depends heavily on the time of year you close. Florida’s cycle, running November to March, can also lead to large upfront escrow deposits at the closing of your escrow. In Connecticut, due dates vary by county - we've had client who escrowed up to 6 months of taxes at closing, so timing plays a major role in how much you’ll need to deposit initially.

Some borrowers may qualify to waive escrow if they put 20% or more down and have excellent credit. Waiving escrow means you’re responsible for paying taxes and insurance directly. Sometimes this option comes with a small rate increase or fee because your loan is seen as "more risky" than someone in the exact same position who also escrows for taxes and insurance, but for very strong borrowers, the impact can be negligible.

If you don’t mind the slightly higher monthly payment that comes with escrowing, escrowing throughout the year provides peace of mind because you won’t need to self-fund large lump-sum payments when taxes or insurance premiums are due. It removes the risk of missing a tax due date or letting insurance lapse.

Without escrow, you’d need to budget and set aside thousands of dollars on your own. Some highly disciplined borrowers choose this path, but for most, escrow simplifies the financial side of homeownership.

Escrow Accounts in a Refinance

Refinancing brings a twist: your old escrow account doesn’t move with you. When your existing loan is paid off, that escrow account closes and your prior lender will send you a refund of the balance, but it doesn't happen right it closing. It often taking 30–45 days. At the same time, your new lender must set up a fresh escrow account, and that is required to take place at closing. This can mean writing a sizable check at closing to fund the new account while you wait for the old balance to return.

One way to avoid this cash crunch is escrow netting. Instead of waiting weeks for a refund, some lenders apply your existing escrow balance directly to your loan payoff. This reduces the cash you need at closing and smooths the transition. For homeowners in states like Illinois or Connecticut, where tax bills are high and escrow balances large, netting can save thousands upfront. Mortgage brokers add value here: they can shop across multiple lenders to not only find you the lowest rate, but also connect you with lenders willing to offer escrow netting. That way you don’t have to worry about chasing down refunds or covering a large new escrow deposit yourself. For borrowers using VA IRRRLs, especially those aiming for no-closing-cost refinances, having a broker line up a lender who allows escrow netting can be a huge relief.

Timing is critical. In California, closing right after semiannual taxes are paid can lower your upfront deposit. In Texas, where property taxes are due annually, refinancing near the end of the year can require hefty escrow funding. To avoid shortages, most lenders require a cushion—usually two months of taxes and insurance—to cover unexpected increases.

Escrow Rules by Loan Type

Conventional Loans: Borrowers with 20% down and strong credit may waive escrow, though lenders sometimes charge a fee or slightly higher rate. In high-tax states like Florida and Texas, many lenders still encourage escrow to ensure timely payments.

VA IRRRLs: VA loans strongly favor escrow accounts. For veterans refinancing in states like Texas or Florida, escrow is automatically re-established, ensuring taxes and insurance are covered. Netting can help minimize out-of-pocket costs in a VA IRRRL.

Jumbo Loans: Jumbo mortgages almost always require escrow accounts. With higher loan balances, lenders want the assurance that taxes and insurance are paid. Waivers are rare even for highly qualified borrowers.

FHA Loans: FHA loans always require escrow accounts, regardless of down payment size or credit score. Taxes and insurance must be included in the monthly mortgage payment. Unlike conventional or VA loans, there’s no option to waive escrow under FHA guidelines.

Escrow Across Different States

Florida: Escrow accounts are standard, with large deposits often needed because of the November–March tax cycle.

California: Semiannual due dates in February and November mean timing of closing matters. Close right after taxes are paid and you’ll owe less upfront; close before and you may need to deposit more.

Texas: Some of the highest property taxes in the country make escrow accounts essential. Most lenders won’t allow waivers here. LendFriend, however, can pair you with a lender who will consider an escrow waiver if this is a top priority for you.

Connecticut: Attorney closings are the norm, but escrow accounts are still required in most cases. County-level schedules dictate how much is collected.

Illinois: High property taxes mean large escrow accounts. Netting can be especially helpful during refinances.

Colorado: Property tax bills are due twice a year, and many counties reassess property values annually. Lenders almost always require escrow here to manage fluctuating tax bills, especially in fast-growing markets like Denver.

Virginia: With semiannual tax due dates varying by county and hurricane and flood insurance considerations in coastal regions, lenders strongly favor escrow accounts. Escrow helps ensure taxes and insurance are paid on time, reducing risk for both borrower and lender.

North Carolina: Escrow accounts are standard for most mortgages. Rising property values in urban markets like Raleigh and Charlotte mean tax bills are increasing, and escrow smooths out those costs.

New Jersey: Among the highest property taxes in the country, New Jersey virtually always requires escrow accounts. The balances can be large, but they protect both borrower and lender from missed payments.