The Bottom Line Up Front
An escrow account (also called an impound account) on a VA loan holds a portion of your monthly payment to cover property taxes and homeowners insurance when they come due. Most VA loans require an escrow account. The lender collects one-twelfth of your annual tax and insurance bill each month, then pays the bills on your behalf when they are due. This protects both you and the lender from missed payments that could result in tax liens or lapsed insurance coverage.
- Required on most VA loans: Lenders generally require escrow for taxes and insurance, though some allow waiver at higher LTV with a fee
- Monthly payment impact: Your PITI payment includes principal, interest, taxes (escrow), and insurance (escrow). The escrow portion typically adds $200 to $600 per month depending on location
- Annual escrow analysis: The servicer reviews your escrow account annually and adjusts the monthly amount if taxes or insurance premiums changed
- Shortage vs surplus: If the account is short, your payment increases. If it has excess, you receive a refund or credit
How Escrow Works on a VA Loan
At closing, the lender collects an initial escrow deposit (typically 2 to 6 months of taxes and insurance) to fund the account. Each month after closing, a portion of your mortgage payment goes into escrow. When the property tax bill or insurance premium is due, the servicer pays it from the escrow balance.
In my experience, the escrow setup at closing is where borrowers are most surprised by the cash-to-close amount. The initial escrow deposit can add $2,000 to $5,000 to closing costs depending on when during the tax cycle you close and the annual premium amounts.
What Escrow Covers and What It Does Not
| Covered by Escrow | Not Covered by Escrow |
|---|---|
| Property taxes | HOA dues |
| Homeowners insurance | Utilities |
| Flood insurance (if required) | Home warranty |
| Mortgage insurance (not applicable to VA) | Maintenance and repairs |
The Annual Escrow Analysis
Once per year, your loan servicer reviews the escrow account to ensure the balance is sufficient to cover upcoming tax and insurance payments. If property taxes increased or your insurance premium went up, the servicer raises your monthly escrow payment VA loans, but it is not guaranteed. Conditions typically include LTV below 80% to 90%, a clean payment history, and sometimes a waiver fee of 0.125% to 0.25% of the loan amount.
If escrow is waived, you are responsible for paying property taxes and insurance directly when due. Missing a tax payment results in a tax lien on the property. Missing an insurance payment means the lender places forced insurance (which is more expensive) until you obtain your own coverage.
The Bottom Line
Escrow accounts on VA loans collect monthly taxes and insurance so bills are paid automatically. Most VA loans require escrow. Expect your payment to adjust annually based on tax and insurance changes. Budget for the initial escrow deposit at closing, which adds to your cash-to-close. If you want to waive escrow, ask your lender about their requirements and fees.
Frequently Asked Questions
Why did my VA loan payment go up?
The most common reason is an escrow adjustment after the annual analysis. If your property taxes or insurance premiums increased, the servicer raises your monthly payment to cover the higher amounts. Your principal and interest portion stays the same on a fixed-rate loan.
Can I get an escrow refund?
Yes. If your escrow account has a surplus above the required cushion (typically two months of payments), the servicer must refund the excess within 30 days of the annual analysis. Surpluses usually occur when taxes decrease or you switch to a cheaper insurance policy.
What happens to escrow when I refinance?
The old servicer refunds your existing escrow balance after the refinance closes, typically within 20 to 30 business days. The new loan sets up a fresh escrow account with its own initial deposit collected at closing.