Complete Escrow Guide
Written by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
Escrow has two meanings in a home purchase: the neutral account that holds funds during the transaction, and the account your lender uses to pay property taxes and insurance over the life of the loan. Both protect you.
This guide explains both kinds of escrow and how they work in Florida. Mortgage Capital, NMLS# 1859012, helps Florida buyers understand their escrow accounts.
Escrow during the purchase
When you go under contract, your earnest money deposit is held in escrow by a neutral third party, often the title company. It stays there until closing, protecting both buyer and seller.
At closing, that deposit applies to your purchase, and the escrow holder disburses all funds per the contract.
The mortgage escrow account
After closing, your lender usually sets up an escrow account to collect a portion of your property taxes and homeowners insurance each month, then pays those bills when due.
This spreads large annual bills into manageable monthly amounts and ensures they are paid on time.
How escrow payments are calculated
The lender estimates your annual taxes and insurance, divides by twelve, and adds that to your monthly payment, plus a small cushion allowed by law. Each year they re-analyze and adjust.
In Florida, where insurance can change significantly, the annual adjustment can move your payment noticeably.
Escrow shortages and surpluses
If taxes or insurance rise more than expected, you may have a shortage, which raises your payment or requires a lump sum. If costs come in lower, you get a refund for the surplus.
After buying, the tax reassessment often creates a shortage in the first year, so budget for an adjustment.
Waiving escrow
Some borrowers with enough equity and strong credit can waive escrow and pay taxes and insurance themselves. This requires discipline to set aside funds for the large annual bills.
We explain whether waiving makes sense for your situation in Florida's variable insurance market.
Complete Escrow Guide: step by step
Frequently asked questions
What is escrow in a home purchase?
It has two meanings: the neutral account holding funds during the transaction, and the account your lender uses to pay taxes and insurance.
What is an escrow account on a mortgage?
An account where the lender collects part of your taxes and insurance each month and pays those bills when they come due.
How is my escrow payment calculated?
The lender estimates annual taxes and insurance, divides by twelve, and adds a small legal cushion, re-analyzing each year.
What is an escrow shortage?
When taxes or insurance rise more than expected, leaving the account short. You cover it through a higher payment or a lump sum.
Why did my escrow payment go up in Florida?
Often because the tax reassessment after purchase or rising insurance increased the bills, creating a shortage.
Can I get an escrow refund?
Yes. If your account has a surplus after the annual analysis, the servicer refunds the excess.
Can I waive escrow?
Some borrowers with enough equity and strong credit can, paying taxes and insurance themselves. It requires discipline.
Who holds my earnest money?
A neutral third party, often the title company, holds it in escrow until closing to protect both sides.