Suppose you buy a $350,000 home in the city of Richmond with an FHA loan. Your monthly payment would be about $2,771, and roughly $655 of that never reaches your lender as principal or interest. It goes into an escrow account. To answer the question behind “what is escrow account mortgage” searches: an escrow account (also called an impound account) is a holding account your loan servicer uses to collect a monthly share of your property taxes, homeowners insurance, and any required mortgage insurance, then pay those bills for you when they come due.
This guide covers how escrow works on FHA, VA, and Conventional loans in Richmond, VA, how the payment is calculated, and why it can change on a fixed-rate loan. It includes a worked payment example, a program comparison table, and a 10-question FAQ. Written by Duane Buziak, NMLS #1110647.
Table of Contents
- How FHA, VA, and Conventional Loans Use Escrow for Richmond Buyers
- What Goes Into the Account, and How Payments Are Calculated
- Escrow Rules by Loan Program: FHA, VA, and Conventional
- Worked Dollar Example: A Richmond Purchase With Escrow
- Escrow vs. Paying Taxes and Insurance Yourself: Program Comparison Table
- Escrow Account Mortgage FAQ for Richmond Buyers
- Getting an Escrow-Inclusive Payment Estimate
How FHA, VA, and Conventional Loans Use Escrow for Richmond Buyers
An escrow account is money that belongs to you, held by your loan servicer and spent on your behalf. Each month, a portion of your estimated annual property tax bill and homeowners insurance premium is added to your principal and interest payment. On FHA loans, the monthly mortgage insurance premium is collected the same way. When the city sends a tax bill or your insurer sends a renewal, the servicer pays it from the account. You do not write those checks yourself.
That is why escrow shapes your real monthly cost. In the city of Richmond, you pay city real estate tax plus homeowners insurance on top of your loan payment, and a quote that shows only principal and interest understates what you will actually send each month. To size up the market, check current city-level figures from Virginia REALTORS or Zillow’s city-level home value data for Richmond. Prices move monthly, so any median you read is only accurate as of its publication date.
One point of confusion deserves clearing up early. The word “escrow” also describes what happens at closing, when a settlement agent holds the earnest money, the deed, and the funds until everything is signed and recorded. That closing escrow ends the day your purchase records. The servicing escrow account described in this article starts at closing and continues for as long as the loan has an escrow requirement.
Escrow is not an extra fee. It is your own tax and insurance money, collected in installments instead of one large bill. “No escrow” does not mean no taxes either. It means you carry the responsibility of paying them directly, on time, in full.
What Goes Into the Account, and How Payments Are Calculated
The math is simple. Add your annual property tax bill, your annual homeowners insurance premium, and on FHA loans your annual mortgage insurance premium (MIP). Divide the total by 12. That monthly amount is added to your principal and interest payment, and the sum is your total monthly payment.
The initial deposit and the cushion
At closing, you typically fund the account with an initial deposit so the servicer has enough on hand when the first bills arrive. Federal rules limit how much extra the servicer can hold. Under RESPA’s Regulation X, 12 CFR 1024.17, the cushion is capped at one-sixth of the estimated annual disbursements, which equals two months of escrow payments. A servicer may hold less, but not more. Your Loan Estimate and Closing Disclosure show the initial escrow deposit, so you can see the amount before you sign.
The annual escrow analysis
Servicers review the account at least once a year. They compare what they collected with what they paid out, then project the next twelve months using current tax and insurance figures. If your tax assessment or insurance premium rose, your monthly escrow amount rises with it, even on a fixed-rate loan. The fixed rate protects your principal and interest. It does not freeze your taxes or your premium.
The analysis can produce two outcomes:
- Shortage: The account holds less than needed. Servicers commonly let you pay the gap in a lump sum or spread it across the following months, and your new monthly payment also reflects the higher projected costs.
- Surplus: The account holds more than needed. Under the CFPB’s published guidance, a surplus of $50 or more must be refunded to you, while smaller surpluses may be refunded or credited to the next year’s payments.
The CFPB’s plain-language page, What is an escrow or impound account?, covers these rules and is worth bookmarking. Your servicer must send you an annual statement explaining every deposit, payment, and adjustment.
Escrow Rules by Loan Program: FHA, VA, and Conventional
Each program treats escrow a little differently, and the differences affect whether you have a choice.
FHA loans
FHA loans are built around escrow. Property taxes, hazard insurance, and the monthly MIP are collected through the servicer, and there is no routine waiver. The governing standards live in HUD’s Single Family Housing Policy Handbook 4000.1, available through hud.gov. Rules get updated, so confirm current language with your loan officer before relying on any summary.
VA loans
The VA does not itself make escrow a loan benefit requirement or prohibit it, but lenders and servicers typically collect taxes and insurance through escrow as a matter of their own servicing practice. One item is never part of it: the VA funding fee. That fee is paid at closing or financed into the loan balance, and it is not an escrow item. Review the program basics at va.gov and confirm your servicer’s practice before closing.
Conventional loans
With less than 20% down, escrow is typically required. If you put 20% or more down, or later reach that equity, some lenders allow you to waive it, often with a one-time fee or a small pricing adjustment. Whether a waiver exists is lender-dependent, so ask before you lock. Conventional loan limits in 2026 are set by the FHFA, with the baseline conforming limit at $832,750; confirm the current figure at fhfa.gov.
Duane Buziak walks every borrower through these options before they choose a program, because the escrow terms can tip a close decision. His NoTouch Credit Pull soft-pull pre-approval lets you see a payment with taxes and insurance included before any hard credit inquiry lands on your report.
Worked Dollar Example: A Richmond Purchase With Escrow
This is an illustration, not a quote. Suppose a buyer purchases a Richmond home at a round $350,000, a figure chosen for easy math. Check current city-level data from Zillow or Virginia REALTORS for today’s actual median. Assume an FHA loan with 3.5% down and an example rate of 6.25% on a 30-year term. For the general rate environment, see Freddie Mac’s weekly Primary Mortgage Market Survey.
- Down payment (3.5%): $12,250
- Base loan amount: $337,750
- Upfront MIP (1.75%) financed into the loan: $5,911, for a total loan of $343,661
For property tax, assume the assessed value equals the price and the city rate is $1.20 per $100 of assessed value. That has been the city’s rate in recent years, but confirm the current rate with the City of Richmond before using it. Annual tax is $350,000 ÷ 100 × $1.20 = $4,200. For insurance, assume an estimated $1,800 a year; real premiums vary widely by home and carrier. Annual MIP at an assumed 0.55% of the base loan is about $1,858.
| Monthly Payment Item | Amount |
|---|---|
| Principal and interest ($343,661 at 6.25%, 30 years) | $2,116 |
| Property tax escrow ($4,200 ÷ 12) | $350 |
| Homeowners insurance escrow, estimate ($1,800 ÷ 12) | $150 |
| Monthly MIP (about $1,858 ÷ 12) | $155 |
| Total monthly payment | $2,771 |
The tax, insurance, and MIP items add up to $655, or about 23.6% of the payment. Principal and interest alone would have shown $2,116, so a quote that left escrow out would understate the real monthly cost by $655.
Now apply the annual analysis. If the insurance premium rises 10%, from $1,800 to $1,980, the monthly insurance escrow goes from $150 to $165. The total payment moves from $2,771 to $2,786, an increase of $15 a month or $180 a year, with the loan rate unchanged.
Escrow vs. Paying Taxes and Insurance Yourself: Program Comparison Table
| Feature | FHA Loan | VA Loan | Conventional Loan |
|---|---|---|---|
| Escrow required? | Yes, as a standard practice | Not set by the VA; lenders and servicers typically require it | Typically yes with under 20% down; lender-dependent above that |
| Items typically escrowed | Property tax, homeowners insurance, MIP | Property tax, homeowners insurance | Property tax, homeowners insurance |
| Mortgage insurance or fee treatment | Upfront MIP financed or paid at closing; monthly MIP collected with the payment | VA funding fee paid at closing or financed; not an escrow item | Private mortgage insurance added monthly when down payment is under 20% |
| Waiver possibility | No routine waiver | Lender- and servicer-dependent | Possible at 20% or more equity; may carry a fee or pricing adjustment |
| Down payment floor | 3.5% (with qualifying credit) | 0% for eligible borrowers | As low as 3% on certain programs |
Pros and cons of escrow
Escrow’s main advantage is budgeting. You never face a lump-sum tax bill, and the servicer handles deadlines, so a missed payment cannot trigger a tax lien or a lapse in coverage. The trade-offs are less control over your cash, since the money sits with the servicer instead of earning interest in your own account, and the payment can change after each annual analysis.
Duane Buziak invites you to Dare to Compare: line up full payment quotes from any source on equal terms, with escrow included, and judge them on the real monthly number. A NoTouch Credit Pull pre-approval gives you a clean starting point for that comparison without a hard inquiry.
Escrow Account Mortgage FAQ for Richmond Buyers
What is an escrow account on a mortgage?
An escrow account is a servicer-held account that collects part of your annual property taxes, homeowners insurance, and any required mortgage insurance each month and pays those bills when due.
Is escrow required on an FHA loan?
Yes, FHA loans routinely collect taxes, homeowners insurance, and MIP through escrow, with no routine waiver; confirm current HUD handbook language with your loan officer.
Do VA loans require escrow?
The VA does not itself mandate or prohibit escrow, but lenders and servicers typically collect taxes and insurance through an escrow account.
Can I waive escrow on a Conventional loan?
Sometimes, because some lenders allow a waiver at 20% or more equity, often with a fee or pricing adjustment, but it is lender-dependent.
Why did my escrow payment go up?
Your payment rose because the annual escrow analysis found higher property taxes, higher insurance premiums, or a shortage in the account.
What is an escrow cushion?
An escrow cushion is extra money the servicer holds as a buffer, capped by federal rules at two months of escrow payments.
What is an escrow shortage?
A shortage means the account holds less than the servicer needs to cover upcoming bills, and you can often repay it in a lump sum or spread it over later payments.
Do I get an escrow refund?
Yes, if the annual analysis shows a surplus of $50 or more, the servicer must refund it to you; smaller surpluses may be refunded or credited.
Does escrow include the VA funding fee?
No, the VA funding fee is paid at closing or financed into the loan and is not an escrow item.
Can I cancel escrow later?
Possibly on a Conventional loan, since some servicers allow removal after you reach sufficient equity and meet their conditions, while FHA loans generally keep escrow in place.
Getting an Escrow-Inclusive Payment Estimate
Escrow spreads your property taxes and insurance across twelve monthly payments, and the rules for how it works differ by loan program: FHA builds it in, VA leaves it to lender and servicer practice, and Conventional gives you a possible waiver once your equity is high enough. The number to judge any loan by is the full monthly payment with escrow included, not principal and interest alone.
Whether you’re a veteran ready to use your hard-earned benefits or a homebuyer exploring your financing options, your path to homeownership starts with expert guidance you can trust. Connect with Duane today for a personalized consultation and discover the mortgage solution tailored to your unique goals in the Stafford County and Richmond area. Richmond Home Loans by Duane Buziak can run your NoTouch Credit Pull and show you a payment estimate with escrow included before you commit to anything.