💰 What Is a Mortgage Escrow Account?

A mortgage escrow account is a special account your lender uses to collect and pay your property taxes, homeowners insurance, and mortgage insurance (PMI) on your behalf. Instead of paying these bills directly, you pay a portion into the escrow account each month as part of your mortgage payment.

How a Mortgage Escrow Account Works

Your lender estimates your annual taxes and insurance costs, divides them by 12, and adds that amount to your monthly mortgage payment. These funds sit in your mortgage escrow account until the bills come due.

A mortgage escrow account typically covers:

  • Property taxes
  • Homeowners insurance
  • Private mortgage insurance (PMI) if required
  • Flood insurance (in applicable zones)

Lenders often require escrow accounts for:

  • FHA loans
  • VA and USDA loans
  • Conventional loans with less than 20% down
  • Borrowers with past payment risk

This ensures taxes and insurance are paid on time, reducing lender risk.

Why a Mortgage Escrow Account Matters

Benefits for Borrowers:

  • Simplifies budgeting—one monthly payment covers multiple bills
  • Prevents missed tax or insurance payments
  • Protects you from large annual tax bills
  • Ensures your insurance stays active

Benefits for Lenders:

  • Reduces risk of unpaid property taxes
  • Protects collateral with continuous insurance coverage
  • Improves loan performance and lowers default risk

Example of a Mortgage Escrow Account

If your annual taxes are $4,800 and homeowners insurance is $1,200, your lender needs $6,000 per year to pay these bills. They divide that by 12, adding $500 to your monthly payment for escrow.

You’ll see this amount listed on your mortgage statement as your escrow portion.

Why Mortgage Escrow Accounts Matter for FSBO Sellers

Understanding your escrow account helps FSBO sellers avoid surprises during listing, negotiations, and closing.

  • Escrow balances can affect prorated taxes at closing
  • Lenders will refund remaining escrow funds after payoff
  • Buyers often ask questions about escrow requirements
  • Accurate escrow documentation helps prevent contract delays

Selling through Flat Fee MLS with Brokerless gives your home nationwide visibility with no 6% commission.

Ready to List Your Home FSBO?

Get maximum exposure and save thousands with a Flat Fee MLS listing. Stay in control of your sale and your equity.

View Flat Fee MLS Plans →