In 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.
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.
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.