By Mike Basti, President and Mortgage Broker · NMLS #322904In a mortgage, "escrow" means two things. First, escrow during the purchase is a neutral third party that holds your earnest money, documents, and funds until every condition is met, then closes the deal — in California, most home purchases "open escrow" with an escrow or title company. Second, an escrow (impound) account is set up by your lender after closing to collect part of your property taxes and homeowners insurance with each mortgage payment and pay those bills for you.
Escrow during your home purchase
When your offer is accepted, you "open escrow." A neutral third party (an escrow or title company) holds the earnest money deposit, tracks contingencies, coordinates the loan and title, and only disburses funds and records the deed once both sides meet their obligations. This protects buyer and seller — no one hands over money or keys on trust alone.
Your escrow (impound) account after closing
Separately, your lender usually sets up an escrow account. Instead of paying property taxes and insurance in big lump sums, you pay 1/12 of the annual total with each monthly mortgage payment; the lender holds it and pays the bills when due. Your payment is quoted as PITI — principal, interest, taxes, and insurance — for this reason.
Do you have to have an escrow account?
On many loans you can waive impounds (often with 20%+ equity and a small fee or slightly higher rate), meaning you pay taxes and insurance yourself. Government loans and low-down loans typically require them. Escrow accounts are also re-analyzed yearly, so your payment can change when taxes or insurance premiums rise.
Bottom line: Two "escrows," one goal — protecting the money. The purchase escrow protects your deposit; the impound account keeps your taxes and insurance current so nothing lapses. Your loan officer will show both on your estimate.
What a California impound payment looks like
Illustrative example only. Property taxes in California start from roughly 1% of the purchase price under Proposition 13, plus local assessments that vary by area.
| Item | Amount |
|---|---|
| Purchase price | $900,000 |
| Example annual property tax (about 1.1%) | $9,900, or $825 per month |
| Example annual homeowners insurance | $2,400, or $200 per month |
| Added to your monthly payment | About $1,025 |
At closing, the lender also collects an initial deposit to start the account. Federal rules allow a cushion of up to two months of escrow payments.
Shortages, surpluses and the annual analysis
- Surplus: if the account holds $50 or more above what is needed, the servicer generally must refund it.
- Shortage: if taxes or insurance went up, you can usually pay the shortage at once or spread it over the next 12 payments.
- Tax dates: California property taxes are paid in two installments, due November 1 and February 1, and late after December 10 and April 10.
Watch for the supplemental tax bill
After you buy, the county reassesses the home at the new price and may send a supplemental property tax bill for the difference. This bill often goes straight to you and is often not paid from your impound account. Read it carefully and ask your servicer whether they will pay it. See our escrow guide and escrow account explainer, or estimate your full payment in the mortgage payment calculator. Rates change daily, so for an accurate quote call 949-379-5320 (Newport Beach) or 310-759-4757 (Marina del Rey).
Frequently asked questions
What does escrow mean in a mortgage?
It has two meanings: the neutral account that holds funds and documents during your home purchase until closing, and the lender-run account that collects and pays your property taxes and insurance after closing.
What is an escrow (impound) account?
An account your lender uses to collect part of your annual property taxes and homeowners insurance with each monthly payment, then pay those bills on your behalf when due.
Can I waive my escrow account?
Often yes — typically with 20%+ equity and sometimes a small fee or rate adjustment — so you pay taxes and insurance directly. Many government and low-down-payment loans require escrow.
Why did my escrow payment go up?
Escrow accounts are re-analyzed annually. If your property taxes or insurance premiums rose, the lender collects more each month to cover them, so your total payment increases even though principal and interest stay the same.
What is a supplemental property tax bill in California?
After a purchase, the county reassesses the home at its new value and bills the difference for the rest of the tax year. It is often mailed to the owner and not paid from the impound account, so check with your servicer.
How long does a purchase escrow take in California?
Most financed purchases close in about 30 to 45 days after escrow opens. Cash purchases can close faster, and complex loans can take longer.
Save Financial, Inc. — NMLS #377740, DRE #01875766. Equal Housing Opportunity. Figures are illustrative for 2026 and not an offer of credit or a guarantee of rates or approval.