Most homeowners never question their escrow account. The smarter move is to look at where your money is actually sitting and who is earning interest on it. Here's exactly how it works — and when waiving it makes sense.
When you have a mortgage, you can set up an escrow account — also known as an impound account. Three things happen behind the scenes.
Built into that single monthly payment is a portion for property taxes and a portion for homeowners insurance — separate from principal and interest.
Those tax and insurance dollars sit in an escrow account managed by your servicer — often for months at a time, earning interest for the institution holding them.
When taxes or insurance come due, the lender writes the checks straight from that account. You never see those bills directly — convenient, but also why most people never realize what's actually happening.
You're fronting cash on day one (escrow setup at closing), then adding more every single month, and it just sits there. If anyone is going to make money on your money, it should be you.
Before you assume you have a choice, here's the quick lay of the land.
FHA loans require an escrow account regardless of down payment. If you're using FHA, you're impounding taxes and insurance — period.
In most states you generally need 20% down on a conventional loan before lenders allow you to waive escrow.
In California, you can sometimes waive escrow with as little as 10.01% down on a conventional loan. Lower down payment AND control over your money.
The taxes and insurance bills are exactly the same either way. The only thing changing is who holds the money — and who earns interest on it while it sits.
Same thing, different name. "Impound" is more common in California; "escrow" is the standard national term. Both refer to the account your servicer uses to collect and pay taxes and insurance.
If you waive escrow, you skip the upfront reserves at closing. If you keep it, lenders typically need 2–6 months of taxes and insurance pre-funded — that's the "prepaids" line on your closing disclosure.
Some lenders charge a small fee to waive escrow on a conventional loan — often a quarter-point cost adjustment. We'll review whether the math works in your favor before you choose.
Technically yes, but most VA lenders still require it. FHA never does. Conventional loans give you the most flexibility, especially in California.
Lenders do an annual escrow analysis. If taxes or insurance went up, your monthly payment goes up — and you may owe a shortage payment. This is the surprise homeowners hate most.
Licensed in California, New Jersey, and nationwide through PRMG Sacramento. Experienced in VA, FHA, conventional, jumbo, Non-QM, and renovation loans, with access to down payment assistance programs designed to help buyers move forward with confidence.