The word 'escrow' covers two different things in homebuying. Pre-close: a neutral third party holding earnest money + title work. Post-close: a monthly account on your loan that pays property tax + insurance. Both real. Both worth understanding.
Your earnest money goes here when your offer is accepted. The escrow company (often the title company) holds it until close. They also order title work, pay off the seller's loan, and disburse cash at closing. Neutral party — they work for the deal, not either side.
Your servicer collects 1/12 of your annual property tax + homeowners insurance every month, on top of P&I. They pay the bills when due. Most lenders REQUIRE an escrow account on FHA + low-down conventional. You can waive at 80%+ down on conventional.
Annual property tax + annual insurance + (annual flood insurance if required) ÷ 12. Lender adds a 2-month cushion to absorb timing variances. Total = your monthly escrow contribution.
Once a year, your servicer recalculates: were they over-collecting? Refund check. Under-collecting? Bigger monthly going forward + a make-up. The letter arrives ~60 days before the change. Read it.
Property taxes go up. Insurance premiums go up. The escrow shortfall hits as a bigger monthly payment + sometimes a lump-sum catch-up. Read the letter. Budget the bump.
Both you AND the servicer might pay = double-pay. Always confirm who's paying before sending a check yourself.
Waiving = you're responsible for budgeting + paying tax + insurance directly. Tax bills hit twice a year as multi-thousand-dollar lumps. If you can't reserve, don't waive.
If your deal falls apart, your earnest money rules depend on the contract contingencies. Inspection contingency lets you recover. No contingency = seller may keep it. Read your contract.
Five minutes. We map your real PITI including escrow — not just principal + interest.