escrows

When your down payment amount is less than 20% of the sales price, lenders will require you to set up an escrow account.  This account is used to collect your homeowner’s insurance, property taxes and mortgage insurance each month.  An initial escrow deposit (aka escrow reserves) of two or three months of your homeowner’s insurance premium along with two to three months of property taxes is the amount that you will pay at closing to start your escrow account.  This amount is in addition to your other prepaid expenses.  Escrow reserves serve as a cushion to keep your escrow account from becoming deficient in the future as your homeowner’s insurance premium, property taxes and mortgage insurance become due.  Another way to think of your escrow account is as your savings account that only your loan servicer can make withdrawals from.