Understanding Your Mortgage Escrow Account in Pennsylvania
If you’re buying or already own a home in Pennsylvania, you’ve likely heard the word “escrow” during the mortgage process. But what exactly is a mortgage escrow account, and how does it affect your monthly payments?
In this article, we’ll break it down so you can feel confident and informed about how escrow works—especially if you’re buying in places like West Chester or Chester County.
What Is a Mortgage Escrow Account?
A mortgage escrow account is a separate account set up by your lender to manage certain property-related expenses on your behalf. Most commonly, these include:
- Property taxes
- Homeowners insurance
- (In some cases) Private mortgage insurance (PMI)
Your lender collects money each month as part of your mortgage payment, then uses that money to pay your tax and insurance bills when they come due.
Why Do Lenders Require Escrow?
Escrow accounts protect both you and the lender. By collecting taxes and insurance monthly, you avoid large lump-sum payments and reduce the risk of missed bills—which could put your home or the lender’s investment at risk.
In Pennsylvania, most lenders require an escrow account if:
- Your down payment is less than 20%
- You have an FHA or VA loan
- You’re a first-time buyer with limited reserves
What Escrow Covers in Pennsylvania
In Chester County and most of PA, the following items are typically included:
County, Township, & School Taxes
- Collected annually or semi-annually depending on your township
- Rates vary based on millage (tax per $1,000 of assessed value)
Homeowners Insurance
- Usually renewed yearly
- Must remain active as long as you carry a mortgage
Private Mortgage Insurance (PMI)
- If required, your lender may include it in escrow until you reach 20% equity
How Your Monthly Mortgage Payment Is Calculated
Your monthly mortgage payment typically includes:
- Principal & Interest (goes toward paying off your loan)
- Taxes
- Insurance
- PMI (if applicable)
Together, this is known as PITI—Principal, Interest, Taxes, and Insurance.
What Happens If Tax Rates or Insurance Premiums Go Up?
Each year, your lender performs an escrow analysis. If your taxes or insurance increase, your monthly payment will adjust to reflect the new amount.
You’ll receive:
- A shortage notice if there’s not enough in the account
- An option to pay the shortage in full or spread it over the coming year
If your taxes or homeowners insurance goes down, you may receive a refund. My recommendation would be to take that refund and apply to back your escrow. Generally taxes and homeowner insurance increases over time, so it’s better to have this account over funded.
Do I Need to Send My Tax Bills to My Lender?
Yes—especially in Chester County, homeowners often receive two copies of their annual tax bills. One is supposed to go to the lender and the other to the homeowner.
Tip from J.R. Conway:
“Never assume your lender received the tax bill. It’s your responsibility as a homeowner to make sure it’s paid. Again call your servicer to make sure they received the bill. Monitor your escrow account to make sure your tax payment came out of your escrow account.”
Can I Opt Out of an Escrow Account?
Let your lender know at the time of application on your purchase or refinance. We call this an escrow waiver.
- You have at least 20% equity in your home
- Your lender allows escrow waivers (not all do)
- You’ve had a strong history of on-time payments
This is more common for experienced homeowners or investors who prefer managing taxes and insurance themselves.
Final Thoughts: Escrow Is a Safety Net
While it may seem confusing at first, your escrow account protects your home, your credit, and your financial future. By budgeting monthly, it keeps large, unexpected bills off your plate.
Questions About Escrow?
Call J.R. Conway at CM Mortgage Services, Inc. to talk about how escrow works for your mortgage:
West Chester, PA
610-430-6852
jrcmmortgage@gmail.com
www.cmmortgage.com
NMLS #147631
Whether you’re buying your first home or refinancing, we’re here to make your financing simple and stress-free.
