Escrow is a secure financial arrangement where a third party holds funds for property taxes and homeowner’s insurance on behalf of the mortgage lender. It’s designed to ensure those bills are paid on time and protects both the lender and the homeowner.
What Is Escrow in a Mortgage?
When you buy a home and finance it through a mortgage, you’ll likely encounter an escrow account—especially if you put down less than 20%. But what is it?
An escrow account is a special holding account set up by your lender to pay property taxes and homeowners insurance on your behalf. Instead of paying these large bills in one lump sum every year, you pay into escrow a little bit each month as part of your mortgage payment.
Here’s how it works:
- Each month, you pay your principal, interest, property taxes, and insurance (PITI)
- The tax and insurance portions go into your escrow account
- When your annual tax and insurance bills come due, your lender pays them using funds from escrow
Escrow simplifies budgeting and ensures essential homeownership costs are covered—protecting you from missed payments or lapsed insurance.
What Is Included in an Escrow Payment?
Your monthly escrow payment typically covers two main costs:
1. Property Taxes
Local property taxes in South Carolina vary by county and are assessed annually. Your lender estimates the yearly tax and divides it by 12 months to collect gradually.
2. Homeowners Insurance
Your lender requires coverage on the home, and the annual premium is also divided over 12 months and paid via escrow.
In some cases, your escrow account might also include:
- Flood insurance (if applicable)
- Mortgage insurance premiums
- HOA dues (rare, but possible with specific lenders)
The lender adjusts escrow annually based on changes in tax rates or insurance premiums to ensure there’s enough to cover your bills.
How Does an Escrow Account Change Over Time?
Each year, your lender performs an escrow analysis to ensure you’re contributing the right amount.
If taxes or insurance premiums increase, your monthly payment will go up to account for the change. If your escrow account is short, the lender may:
- Spread the shortage over the next 12 months
- Or ask for a lump sum payment
If there’s an overage, some lenders send a refund, while others apply the extra funds to future bills.
Pro tip: Even if your mortgage is a fixed rate, your total monthly payment can change due to escrow adjustments. Keep an eye on your property tax assessments and insurance premiums!
Do You Have to Use Escrow?
Whether you’re required to use escrow depends on your lender and your loan details.
In most cases:
- If you put less than 20% down, escrow is required
- If you put 20% or more down, some lenders allow you to waive escrow
- VA and USDA loans typically require escrow accounts
- Conventional loans with strong credit and equity might allow an escrow waiver
Even if it’s optional, many homeowners choose to keep escrow because it simplifies financial management and ensures timely payments.
However, waiving escrow means you’re responsible for saving and paying taxes and insurance on your own, usually in lump sums. If you’re not great at budgeting or remembering due dates, escrow is a helpful safeguard.
What Happens at Closing with Escrow?
At closing, your lender will typically collect an initial deposit to fund your escrow account. This ensures there’s enough money to cover the first tax and insurance payments.
Your escrow deposit at closing may include:
- 2 to 3 months of property taxes
- Upfront homeowners insurance premium (typically the first year)
- Extra reserves to prevent escrow shortages
These upfront costs are part of your cash to close—and your real estate agent and lender will provide a full breakdown in your Closing Disclosure (CD).
How Carolina Properties Helps You Navigate Escrow
Escrow can feel confusing—especially for first-time buyers or those purchasing second homes near Lake Marion. That’s why the agents at Carolina Properties at Lake Marion walk with you every step of the way.
We help you:
- Understand how escrow affects your mortgage payment
- Estimate your monthly costs (including taxes and insurance)
- Coordinate with your lender and title company during closing
- Choose between escrowed and non-escrowed loans (when eligible)
- Stay informed about local tax assessments and insurance trends in the Lake Marion area
We believe that informed buyers make confident decisions—and confident buyers make better homeowners.
FAQ: Mortgage Escrow Questions
Q: Can I change my homeowners insurance provider if I have escrow?
Yes! Just notify your lender of the new provider and premium so they can update your escrow disbursement.
Q: What happens if there’s not enough money in my escrow account?
Your lender will notify you and give options: either pay the shortage in a lump sum or spread it over future payments.
Q: Can I make extra payments into my escrow account?
Most lenders allow you to do this, which can help prevent shortages or absorb future increases.
Q: How do I know if my lender is paying my taxes and insurance on time?
Check your escrow statements, which show disbursements made and upcoming due dates. You can also call your local tax office or insurance provider to verify.
Final Thoughts: Let Carolina Properties Guide You Through Escrow with Confidence
Understanding how escrow works is a key part of being a smart homeowner. It helps you budget, ensures your bills are paid on time, and protects your investment. Whether you’re buying your first home, upgrading to a lakefront property, or exploring new loan options, knowing what’s in your mortgage payment—and why—matters.
At Carolina Properties at Lake Marion, we make complicated things simple. From navigating escrow accounts to explaining your monthly payments, our team is here to give you the clarity and confidence you need.
Contact us today for personalized home-buying support and let us help you find the perfect home—without surprises at closing.