Newbie's Guide to Escrow Accounts

Wonder why you even need an escrow account?  Most lenders require them if you put less than 20% down on your purchase. The real reason you have one is so that the lender can be sure your taxes and homeowner's insurance are paid.  The logic is that if you put at least 20% down, you will have enough coin in the game to make sure that those necessary expenditures are taken care of.

Your escrow account is analyzed annually to see how much you paid in and how much they paid out.  If you've over-deposited then you get offered the option of having the extra money refunded or applied to your principal balance. If you've underpaid, for starters your payment will go up to prevent future shortages.  Then to deal with the shortage, you can pay that amount separate from a payment or you can spread the shortage over several months.