What They Are and Why They Matter

When you take out a mortgage, your monthly payment often includes more than just principal and interest. Most homeowners also pay for property taxes and homeowners insurance through an escrow (also called an impound) account.

An escrow account is a separate account managed by your lender or loan servicer to make sure these important property-related bills are paid on time — protecting both you and the lender from missed payments.

How Escrow Works

• Each month your payment includes your loan principal and interest plus roughly 1/12 of your annual taxes and 1/12 of your annual homeowners insurance premium.
• Those extra funds go into your escrow account. When your property tax or insurance bills come due, your servicer pays them for you.
• At closing, most lenders collect a few months of taxes and insurance in advance to “seed” the account so the first bills are covered.

Washington property tax timing: first half due by April 30 and second half due by October 31. See the King County Treasury schedule.

Why Escrow Is Used

• The homeowner avoids late penalties and insurance lapses.
• The lender ensures taxes and insurance stay current on the property.
• You’ll receive an annual escrow statement showing deposits, disbursements, and any shortage/surplus adjustments. Learn more at the Consumer Financial Protection Bureau (CFPB).

When Escrow Is Required (and When It’s Optional)

• Usually required for FHA/VA/USDA loans and for conventional loans with <20% down.
• Borrowers with strong equity and conventional loans may sometimes waive escrow (policy varies by lender). See Freddie Mac’s explainer.

Pros and Cons

Pros

• Smoother budgeting — spread large semiannual/annual bills across 12 months.
• Automatic, on-time payment of taxes and insurance.
• Often required for certain loan types or higher-LTV scenarios.

Cons

• Funds in escrow generally do not earn interest for you.
• Higher cash-to-close at settlement due to initial escrow deposits.
• Less control over payment timing and investing those funds.

Washington Homeowners: What to Watch

1. Closing month matters. Your closing date affects how much must be collected to establish escrow ahead of the next April/October tax due dates.
   
2. Annual escrow analysis. Servicers review accounts yearly and adjust payments if taxes or insurance change.
3. No-escrow path. If you opt out (when allowed), budget carefully. Missed taxes can lead to liens, and insurance gaps can trigger force-placed coverage. 

Need help understanding your escrow?

We work with Washington homeowners every day to explain escrow setup at closing, monthly payment impacts, and annual adjustments. If you’d like a plain-English review of your Loan Estimate or servicing statement, we’re here to help.

 Schedule a Consultation