Escrow: What It Is and What It Isn’t

just bought a house or refinanced. You have your principal and interest payment, but you also may have an escrow account.

You’ve probably heard of an escrow account, but this is one of those items where the term itself doesn’t really explain what it is very well. Now that you have one, you should probably know what it is and how it works as well as what it isn’t.

What Escrow Is and What It Covers

In the context of your mortgage, money in your escrow account goes toward paying off property taxes and homeowners insurance in most cases. Some people only have their property taxes in the account.

The benefit of this is that you don’t have to pay out huge amounts of money all at once when you receive the bill for property taxes and your homeowners insurance premiums. Instead, a portion of your monthly mortgage payment goes toward paying taxes and insurance and your servicer pays the bills when they come due.

If you live in an area where flood insurance is required due to living in a low-lying floodplain, these will be escrowed as well.

What Your Escrow Account Doesn’t Cover

While your escrow account is helpful for your regular property taxes and homeowners insurance premiums, there are certain things that aren’t covered in your escrow account. For example, your tax authority may bill you for unplanned events or one-off assessments.

These bills include things like water and sewer bills that are privately sent out by your municipality or other authority. Homeowners association dues also aren’t escrowed.

Finally, supplemental tax bills aren’t included. This is because they’re typically one-time assessments for special municipal initiatives. You also might get a supplemental tax bill if you live in a state like California that does property tax assessments after a change of ownership and new construction. Let’s take a minute to go over how that works.

What to Know About Paying Supplemental Tax Bills

If you have any questions about a supplemental tax bill you receive outside of what’s covered in your normal escrow account, you should contact your local taxing authority. They’ll be able to help you with any questions.

It’s important to pay these and any bills that aren’t escrowed (homeowners association dues, etc.) by the due date and before they become delinquent. An unpaid tax bill of any kind has the potential to impair or prevent you from purchasing a new home or refinancing your current one if a tax lien is placed on your property. It can also have a negative impact on your credit report and score. You’ll want to do your best to avoid this situation.

If there’s something in your escrow account that you have questions about, you can always feel free to contact us. Since we have visibility into the items that are escrowed, we’ll work to answer your questions to the best of our ability or give you an idea of who might be able to help you. You can give our Client Relations team a call at any time at (800) 863-4332.

J.D. Power has ranked Quicken Loans highest in customer satisfaction for Primary Mortgage Origination for the last eight years and Mortgage Servicing each of the last four years.* We’re your lender for life and will stick with you from your application all the way to your last payment on your mortgage, potentially 30 years down the line. You can always feel free to ask us any questions you have.

Hopefully this has helped give you a better understanding of your escrow account. Here’s more information on property tax questions that clients frequently ask. You can also feel free to leave any questions for us in the comments below.

*For J.D. Power award information, visit JDPower.com.​

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