How Escrow Works
- The borrower places funds in escrow as a sign of good faith. Funds are deposited in the account at the house closing, and the bank is allowed to keep two months' worth of future property tax and insurance payments as a cushion. Once the borrower begins making monthly house payments, which commonly comprise principal, interest, taxes and insurance (PITI), a portion of the payment is deposited into the escrow account. When the tax and insurance payments come due, the lender takes the funds from the escrow account and pays the bills.