If you’re in the homebuying process, you’ve probably come across the term escrow. While it might sound complicated, escrow is a straightforward concept designed to ensure your property taxes and homeowners insurance are paid on time as part of your monthly mortgage payments. At Blink Lending, we believe understanding escrow can help you make smart decisions for your financial future.
What Is Escrow?
Escrow is when your mortgage payment bundles more than just your loan’s principal and interest. It also includes your property taxes, homeowners insurance, and, if applicable, any private mortgage insurance (PMI). This creates one consistent monthly payment, simplifying the process by automatically allocating funds for these essential expenses.
Do You Have to Escrow?
Whether you’re required to escrow depends on your loan type and financial profile. Here’s a quick breakdown of when escrowing is mandatory versus optional:
- It’s Required If:
- You’re using an FHA, VA or USDA loan.
- You’re applying for a Conventional loan, have a credit score below 720, and are putting down less than 20%.
- It’s Optional If:
- You’re putting down 20%+ on a Conventional loan, regardless of your credit score.
- You have a solid credit score of 720+ and are putting down at least 5% on a Conventional loan.
What About Waiving Escrow?
If you qualify, waiving escrow can give you more financial control. Some lenders historically charged a fee—usually a flat 0.25% of the loan amount, paid at closing—to waive escrow. Thankfully, we don’t charge any fees at Blink Lending, and many other lenders are beginning to follow suit.
Why Prepay Escrow at Closing?
When you close on a home, part of your closing costs includes prepaying 2 to 3 months’ worth of property taxes and insurance. But why is this necessary?
Here’s the timeline: If you close in August, your first mortgage payment isn’t due until October 1. This creates a gap before your payments begin to cover taxes and insurance. To prevent an escrow account shortage, lenders require this prepayment to act as a buffer.
And here’s the nice part—any excess amount in your escrow account is refunded to you at the end of the year.
How Does Escrow Work Month to Month?
It’s actually pretty simple. Your lender calculates your annual property tax and homeowners insurance premiums, divides that total by 12, and adds it to your monthly payment. This ensures those bills are covered automatically when they’re due, giving you peace of mind that nothing is overlooked.
Is Escrowing Right for You?
The decision to escrow or not often comes down to personal preference. Here are a couple of ways to think about it:
- Pros of Escrowing:
- Your taxes and insurance are taken care of automatically, avoiding large lump-sum payments.
- The convenience of everything being organized into one payment adds simplicity to your financial routine.
- Pros of Waiving Escrow:
- You’ll have a lower monthly mortgage payment.
- For those who prefer managing their own funds, it offers more control.
Neither option is better or worse—it’s all about what works best for your financial habits and goals.
Need Help Deciding?
Understanding escrow accounts is an important step in feeling confident during your home purchase. If you’re not sure whether escrowing is the right choice or have questions about your options, the team at Blink Lending is here to help. We specialize in providing tailored advice to help our clients make informed decisions.
Take the Next Step
Whether you’re curious about escrow, want to check today’s interest rates, or need help with mortgage pre-approval, we’ve got you covered!
- Get a Rate Quote – Click here.
- Get Pre-Approved Instantly – Click here.
- Apply Now – Click here.
At Blink Lending, we simplify the complex parts of the homebuying process so you can focus on what matters—finding your next home. Contact us today to learn more about your options!
Think Blink for smarter lending solutions.
