Buying
What is escrow in real estate?
Escrow is a neutral third-party arrangement where funds and documents are held until the conditions of a transaction are met. In Texas, the title company typically serves as the escrow agent.
"Escrow" shows up in two different contexts in real estate: the closing process and your ongoing mortgage. They're related but different.
Escrow during the transaction
When you go under contract on a home, the title company acts as escrow agent — a neutral third party holding earnest money, purchase funds, and closing documents until all conditions are met and the deal closes. Neither the buyer nor seller can access these funds unilaterally during this period. This protects both sides.
Escrow account in your mortgage
After closing, most lenders require an escrow account as part of your monthly mortgage payment. Each month, a portion of your payment goes into this account to cover property taxes and homeowner's insurance when they come due. The lender pays these bills on your behalf so they know the home stays insured and taxes don't become a lien.
- Your monthly payment = Principal + Interest + Taxes + Insurance (PITI)
- The lender holds the tax and insurance portion in escrow
- You may receive an escrow analysis annually — if actual costs changed, your monthly payment adjusts
Can you opt out of escrow?
Some lenders allow buyers with strong credit and a down payment of 20%+ to waive the escrow requirement — often for a small fee. This lets you manage your own tax and insurance payments. VA loans typically require escrow unless waived by the lender.
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