An escrow account is a holding account your mortgage servicer uses to collect part of each monthly payment and then pay your property taxes and homeowners insurance for you. The money is yours, set aside for your own bills, and the amount changes whenever those bills change, even on a fixed-rate loan. This guide explains how escrow account funding works, how the payment is calculated, why it moves, and when you can skip it, with a worked Henrico example.
By Duane Buziak, NMLS #1110647, Glen Allen Mortgage by Duane Buziak, operating through Coast2Coast Mortgage LLC (NMLS #376205).
- Escrow Basics for Glen Allen and Henrico Homeowners
- How Money Moves: From Your Payment to the Tax Bill
- Worked Example: A Henrico Escrow Payment, Line by Line
- Why Your Escrow Payment Changes
- Escrow Requirements by Loan Program and When You Can Waive It
- Questions to Ask Before You Choose a Mortgage Broker
- Predictable Monthly Payments, Not Fixed Ones
- Escrow Questions Glen Allen Buyers Ask
Escrow Basics for Glen Allen and Henrico Homeowners
Your full monthly mortgage payment is usually described as PITI: principal, interest, taxes, and insurance. Principal and interest repay the loan. Taxes and insurance make up the escrow portion. Depending on your loan, that portion can also include monthly mortgage insurance and flood insurance if your property sits in a mapped flood zone.
The word “escrow” means two different things in a home purchase, and mixing them up causes real confusion:
- Closing escrow: a title or settlement agent holds your earnest money and closing funds until the sale closes. It ends at settlement.
- Mortgage escrow: an ongoing account run by your servicer, the company that collects your payments after closing. It lasts as long as the loan, or until you waive it where that is allowed.
This article is about the second one. A few misconceptions come up constantly. Escrow is not an extra fee, because the servicer is holding your own money for your own bills. The servicer does not own the funds. And a fixed interest rate does not mean a fixed total payment, a point section four returns to.
Locally, a buyer in Twin Hickory, Wyndham, or Innsbrook pays Henrico County real estate tax through escrow. The county’s rate has been $0.87 per $100 of assessed value in recent years, but rates are set by the Board of Supervisors and can change, so confirm the current figure on the Henrico County Finance pages before you budget. I use that rate as an assumption in the example below. Whether you are buying near Crump Park or on the western side of Short Pump, the escrow mechanics are the same; only the tax bill differs.
How Money Moves: From Your Payment to the Tax Bill
The flow has four steps:
- You send one monthly payment to your servicer.
- The servicer applies the principal and interest portion to your loan and deposits the escrow portion into a separate account.
- When Henrico issues a real estate tax bill, the servicer pays it directly from that account.
- When your homeowners insurance renews, the servicer pays the premium the same way.
Henrico has historically billed real estate tax in two installments, due in June and December (as of this writing, with June 5 and December 5 the dates I have seen; confirm the current schedule on henrico.us). Your payments flow in evenly each month, but the bills go out in large chunks. The balance climbs for several months, drops sharply when a tax bill is paid, and climbs again. That sawtooth pattern is normal.
The escrow cushion
Federal rules let the servicer keep a small buffer so a slightly higher bill does not leave the account short. Under RESPA, the cushion generally cannot exceed two months of escrow payments, a limit described on the CFPB’s escrow account page. The detailed servicer rules are in Regulation X, section 1024.17.
The initial escrow deposit at closing
At settlement you typically fund the escrow account up front. This initial deposit is separate from your first monthly payment. It covers several months of expected tax and insurance payments so the account has enough to pay the next bills on time. You will see it on page two of your Closing Disclosure under the prepaids and initial escrow lines. It is a real cash item, though often a negotiable one: ask about no-out-of-pocket closing options, such as seller credits or other structures, and what they can and cannot cover on your specific loan.
Worked Example: A Henrico Escrow Payment, Line by Line
These figures are illustrations, not a quote. Suppose you buy a home in Glen Allen for $450,000 with 10% down, leaving a $405,000 loan on a 30-year fixed mortgage. I will assume a 6.25% rate for the math. That is a placeholder only; check the current national average on Freddie Mac’s Primary Mortgage Market Survey and know that your own rate depends on credit, loan type, and market conditions on the day you lock. I also leave out private mortgage insurance, which would add to a conventional loan with under 20% down.
- Principal and interest: $405,000 at 6.25% over 30 years comes to about $2,494 per month.
- Real estate tax: assessed at $450,000 times $0.87 per $100 equals $3,915 per year, or about $326 per month.
- Homeowners insurance: a sample premium of $2,400 per year equals $200 per month.
- Escrow portion: $326 plus $200, about $526 per month.
- Estimated total PITI: about $3,020 per month.
What happens when the bills rise
Now suppose the county reassesses the home at $486,000, an 8% increase, and your insurance premium jumps from $2,400 to $3,000.
- Tax becomes $486,000 times $0.87 per $100, or $4,228 per year, about $352 per month. That is roughly $26 more.
- Insurance becomes $250 per month, which is $50 more.
- Your estimated total rises to about $3,096 per month, an increase of roughly $76.
Your interest rate did not move, and your payment still did. The first year can also include a one-time catch-up if the servicer’s projection was low, which the next section covers.
Why Your Escrow Payment Changes and What the Annual Analysis Shows
Once a year, your servicer runs an escrow analysis. It compares what it actually paid for taxes and insurance against what it projected, projects the next twelve months, and mails you a statement with your new monthly escrow amount. Three terms matter:
- Shortage: the account is projected to fall below the required cushion, but is still positive.
- Deficiency: the account actually went negative because bills exceeded what was collected.
- Surplus: the account holds more than it needs.
If you have a shortage, you can usually pay it in one lump sum or spread it over 12 months. Spreading it raises your monthly payment for a year on top of the higher ongoing escrow amount, which is why the jump can feel larger than the underlying bill change. Using the example above, a $600 shortage spread over 12 months adds $50 a month temporarily.
Surpluses go the other way. Under the RESPA rules, a surplus of $50 or more generally must be refunded to you within 30 days, while smaller surpluses may be refunded or credited against future payments. The regulation text has the specifics, and your servicer’s statement should say which applies.
What to do when the statement arrives
- Compare the tax and insurance figures on the statement with your actual bills.
- Shop your homeowners insurance at renewal. A lower premium feeds straight back into a lower escrow payment after the next analysis.
- Review your Henrico assessment notice. If you believe the value is too high, ask the county about its review and appeal process and its deadlines.
- If you paid a large shortage in a lump sum and an error later turns up, ask the servicer in writing to correct it.
Escrow Requirements by Loan Program and When You Can Waive It
Whether you can decline escrow depends on the loan program and your equity. FHA loans generally require escrow for taxes and insurance, and the monthly FHA mortgage insurance premium is collected with the payment; see HUD’s home buying resources for program basics. VA loans are commonly escrowed in practice, and servicing details are on the VA home loans page. Confirm current requirements for your file, because servicing guidance changes.
Conventional loans are more flexible. Escrow is commonly required when you put down less than 20%. With 20% or more, some loan investors allow a waiver, sometimes with a fee or a pricing adjustment. I will not quote a fixed figure because it varies by program and by investor.
| Loan type | Escrow typically required? | Waiver possible? | What is escrowed | What to ask |
|---|---|---|---|---|
| FHA | Yes, generally | Rarely | Taxes, homeowners insurance, monthly mortgage insurance premium, flood insurance if applicable | How is the tax estimate derived, and what is the monthly MIP? |
| VA | Commonly, in practice | Depends on the investor and servicer | Taxes, homeowners insurance, flood insurance if applicable | Is escrow required on my specific loan? |
| Conventional, under 20% down | Commonly yes | Uncommon | Taxes, insurance (mortgage insurance is usually in the payment) | Does anything change once I reach 20% equity? |
| Conventional, 20% or more down | Often optional | Often, sometimes with a fee or pricing change | Taxes and insurance if you keep it | What does a waiver cost in rate or fees? |
| Refinance | Follows the loan type and equity | Possible with enough equity | Taxes and insurance | Will my old escrow balance be refunded to me? |
| How brokers walk through it | Duane Buziak reviews the escrow figures on your Loan Estimate with you and compares options across many loan programs. Courtney Ficken of First Home Mortgage also works with Glen Allen buyers; ask her office directly how she presents escrow choices. Ask any broker to show you the full monthly payment, not only the rate. | |||
Trade-offs of paying taxes yourself
Waiving escrow gives you control of the cash and any interest it earns. The price is discipline: Henrico bills arrive in large amounts, and missing one creates penalties and, eventually, a lien risk. If your homeowners coverage lapses, the servicer can buy force-placed insurance, which is typically more expensive and protects the servicer rather than you.
Questions to Ask Before You Choose a Mortgage Broker
Start with the Loan Estimate. Ask how the tax figure was calculated. A home in a newer area such as West Broad Village may carry a tax estimate based on land or a partial assessment, and the bill can step up after you buy once the county reassesses the finished property. A low estimate that later corrects itself becomes a shortage in your first analysis.
Ask about credit first. Duane Buziak offers a NoTouch Credit Pull, so as a soft pull mortgage broker he can show you options before any hard inquiry. That means a no credit hit mortgage application at the start, so you can compare programs and escrow structures before a formal credit pull is needed.
Ask how the broker shops. A broker with access to hundreds of loan sources can compare rate, fees, and mortgage insurance in a single view. What matters is the total monthly payment, including escrow, not the rate alone. A slightly higher rate with lower mortgage insurance can produce a lower real payment, and only a full PITI comparison shows that.
Finally, ask who you will talk to after closing. Your servicer runs the escrow account, but a broker who knows Glen Allen, Innsbrook, and the rest of western Henrico can help you read an analysis statement and decide whether it looks right. You can reach Glen Allen Mortgage by Duane Buziak at 804-212-8663 or at 4860 Cox Rd, Glen Allen, VA 23060.
Predictable Monthly Payments, Not Fixed Ones
Escrow turns two or three large annual bills into smaller monthly amounts, which is a real help for budgeting. It does not freeze those bills. Assessments, tax rates, and insurance premiums move, and your payment follows them once a year. Know your tax and insurance estimates at the start, read each annual statement, and shop insurance at renewal.
Ready to experience stress-free mortgage approval with no credit hit and access to hundreds of lenders at once? Get your free mortgage consultation today and discover why Glen Allen families trust Duane Buziak for personalized guidance and the fastest close times in the area. Ask for a personalized estimate that shows your full PITI, and we will walk through it line by line.
