Let’s get you closer to your new home.
Prequalification helps you see how much you might be able to borrow.
5-min read
When you close on a mortgage, your lender may set up an escrow account where part of your monthly loan payment is deposited to pay the property taxes and insurance due on your home. With a mortgage escrow account, you don’t have to plan for large payments a few times a year or manage paying taxing authorities or your insurance company yourself. Your lender pays these bills on your behalf with the funds collected from you.
Keep reading for more information about escrow accounts or check out the video below. If you have a U.S. Bank mortgage, learn how you can access your escrow account information online.
How does escrow work?
To set up your mortgage escrow account, your lender will calculate your annual tax and insurance payments, divide the amount by 12 and add the result to your monthly mortgage statement. Each month, the lender deposits the escrow portion of your mortgage payment into the account and pays your insurance premiums and real estate taxes when they are due. Depending on the law in your state, your lender may require some additional funds for your escrow account to help with changes in tax and insurance costs, called an “escrow cushion”.
What is an escrow analysis?
Your lender will examine your escrow account every year to make sure it is collecting the correct amount of money for anticipated tax and insurance expenses. This review, called an escrow analysis, may find you have a shortage or overage in your account.
Shortage: A shortage means your escrow account doesn’t have enough funds to cover the necessary escrow costs. One of the main reasons for a shortage is an increase in your property taxes or insurance bills. If you have questions about the increase, contact your local taxing authority or your insurance company.
Another possible reason for a shortage is a change to your tax or insurance bill due date:
Taxes
Your first escrow analysis may show a shortage if tax due dates change after closing. To avoid late fees or take advantage of early payment discounts, your lender may schedule tax payments earlier than expected.
Insurance
If you changed insurance companies in the middle of your previous company’s term, the resulting change in your insurance bill due date could cause a shortage. A refund from your previous insurance company can be put in escrow to help reduce it.
If a shortage occurs, you have options. You can pay it in full, or the amount can be spread over a period of time and added to your mortgage payment. Keep in mind that paying the shortage in full will most likely not stop your mortgage payment from changing in the future.
Overage: An overage means your escrow account is projected to have more than the minimum balance required at its lowest point in a 12-month period. If the overage is $50 or more, you will be refunded. If the overage is less than $50, your lender may refund or credit the amount. At U.S. Bank, if the overage is less than $50, your monthly payment will be prorated. Keep in mind to receive an overage refund, your mortgage payments must be up to date.
Will my monthly mortgage payment change due to escrow?
It is common for your monthly payment to change during the life of your mortgage due to escrow. Remember that principal and interest make up one portion of your monthly payment, and your escrow deposit makes up the other. Taxes and insurance premiums can change – in fact, these costs tend to increase each year. When this happens, your lender will need to collect more from you each month to properly maintain your escrow account.
If there is a shortage in your escrow account and you do not wish to pay the amount in full, it will be spread over your future mortgage payments, causing them to increase. If there is a shortage and you pay it in full, your escrow payment may still change to anticipate the next tax and insurance bills being paid at the new amounts. A shortage only addresses an existing deficiency in the escrow account and doesn’t account for future increased tax and insurance bills.
Your payment can also change even if you haven’t experienced a shortage. Your lender’s escrow account analysis could find higher tax and insurance expenses are anticipated, causing your escrow deposit, and therefore monthly payment, to increase.
What is not covered by an escrow account?
You may have a tax bill issued outside of the normal cycle, referred to as supplemental, interim, or added assessment. This bill is mailed to you as the homeowner and not paid from the escrow account. You may have the option to contact your lender and pay it from your escrow account; however, be aware an escrow shortage may occur due to the unanticipated bill. Typically, homeowners’ association (HOA) fees are not paid from your escrow account. You can confirm your situation with your lender.
Do I have to have an escrow account?
Banks generally use the loan-to-value (LTV) ratio to determine if your mortgage loan will require an escrow account. This is the ratio of how much you still owe on your home to the appraised value of your home. If your mortgage amount represents 80% or less of your home’s value, typically you may avoid escrow if you choose. However, if you have less than 20% equity as a buyer, you are required to have an escrow account. The type of mortgage loan you have may also affect whether you have an escrow account; for example, loans guaranteed by the Federal Housing Administration (FHA) require one.
If you do not have an escrow account, you are responsible for setting aside funds needed for property taxes and insurance payments and paying on time. Failure to pay can result in penalty charges, a lapse in insurance coverage or even a lien on your home.
If you have a mortgage with U.S. Bank, you can access your escrow account information online.
Once you log in, select your mortgage account from the dashboard and then View, pay & manage. If you’re using online banking, choose My Loan at the top of the page. On the U.S. Bank Mobile App, open the main menu (three vertical dots), then choose My Loan.
Find the "Taxes and Insurance" section on the right – your escrow account balance will be at the top. You can select Show all or choose the respective tab for the information you'd like to view.
Learn more about mortgages.
Stop paying for mortgage insurance.
Here’s how to eliminate these monthly payments.
How much house can I afford?
Find simple advice and tools to help you.
What are mortgage points?
Learn more about what mortgage points are and determine whether “buying points” is a good option for you.
Connect with us to start your homebuying journey
Start of disclosure content
Disclosures
Equal Housing Lender