What Is Escrow? (2027 Home Buyer's Guide)

Escrow means two things when you buy a home. After closing, it is the escrow account your loan servicer runs: each monthly payment adds 1/12 of your yearly property tax and insurance, and the servicer pays those bills when due. Before closing, it is the neutral holding of your deposit and closing funds while the contract is pending. Federal rules (CFPB Regulation X, 12 CFR 1024.17) cap the extra cushion a servicer can hold at 1/6 of a year's escrow bills, about two months. This 2027 guide covers both meanings in Hampton Roads.

Type	When	Held by	What it covers
Escrow account (impound)	Monthly, for as long as the account stays open	Your loan servicer	Property tax, homeowners insurance, and flood or mortgage insurance if required
Closing-process escrow	From ratified contract to settlement	A broker's escrow account or the escrow agent named in your contract; at settlement, the settlement agent you chose	Earnest money deposit, closing funds and documents

Both are called "escrow," but they are separate accounts with separate rules. Context tells you which one is meant.

The escrow account (impound account)

An escrow account, also called an impound account, is set up by your lender and run by your loan servicer. Lenders want it because unpaid taxes or a lapsed policy put their collateral, your home, at risk. Under Regulation X, monthly deposits equal 1/12 of the estimated annual bills plus any cushion, and as long as you are no more than 30 days behind, the servicer must pay each bill by its penalty deadline, advancing its own money if the account runs short.

How escrow pays Hampton Roads tax bills

Hampton Roads cities set real estate tax rates for a July 1 to June 30 fiscal year and bill in installments. When you escrow, the bill often goes to your servicer. If a city offers no discount for paying in full and charges nothing extra for installments, the servicer must pay by installment.

City	Rate per $100 (FY 2026-27)	Installments due
Virginia Beach property taxes and records	$0.97	Dec 5, June 5
Chesapeake	$1.01	Sept 30, Dec 31, Mar 31, June 5
Norfolk	$1.23	Sept 30, Dec 5, Mar 31, June 5
Suffolk	$1.06	Dec 5, June 5
Hampton	$1.14	Dec 5, June 5
Newport News	$1.18	Dec 5, June 5

Source: VaHome property-search pages (checked October 22, 2026), which link each city's official rate and due-date pages. Special districts such as Sandbridge carry different rates. FY 2027-28 rates take effect July 1, 2027.

Escrow makes your monthly payment "PITI"

With escrow, your payment has four parts:

• Principal: pays down the loan
• Interest: the cost of borrowing
• Taxes: escrowed property tax
• Insurance: homeowners insurance, plus flood or mortgage insurance when required

Lenders qualify you on the full payment. HOA and condo dues are usually paid separately. Page 4 of your Closing Disclosure lists your "Escrowed Property Costs over Year 1."

Annual escrow analysis

Each computation year (12 months starting with your first payment date), the servicer re-runs the numbers against current tax bills and premiums and sends an annual statement within 30 days of the year's end. The result is one of three:

• Surplus: if you are current, $50 or more must be refunded within 30 days; less can be refunded or credited to next year.
• Shortage: under one month's escrow payment, the servicer can ignore it, ask for it within 30 days, or spread it over at least 12 months. At one month or more, it can only ignore it or spread it over at least 12 months.
• Deficiency (a negative balance after the servicer advanced money): added to your payments under similar rules.

Shortages usually follow a higher assessment (each city above reassesses yearly) or insurance renewal. On new construction the first tax estimate may cover only the lot, and Virginia lets localities assess a finished building mid-year (Va. Code § 58.1-3292), so a first-year shortage is common. If you PCS and rent the home out, ask your insurer whether you need a landlord policy and send the new declarations page to your servicer.

Closing-process escrow in Virginia

Between a ratified contract and settlement, your earnest money deposit sits with a real estate broker's escrow account or the escrow agent named in your contract, never the seller. A broker must deposit it by the end of the fifth business banking day after ratification, or deliver it to the named escrow agent by the end of the fifth business banking day after receiving it, unless everyone agrees otherwise in writing (Va. Code § 54.1-2108.2). If the deal falls apart, release requires written agreement, a court order or the clear terms of the contract.

You choose the settlement agent: a Virginia attorney, a title insurance company, a licensed title agent, a real estate broker or a financial institution (§ 55.1-1003). The seller cannot require a particular one (§ 55.1-1006). The agent holds closing funds as a fiduciary in a separate trust account, deposited by the close of the second business day (§ 55.1-1008).

At settlement, your deposit is credited to your cash to close, and part of your closing costs funds the new escrow account, shown as "Initial Escrow Payment at Closing" in Section G of the Closing Disclosure. Your servicer must give you an initial escrow statement at settlement or within 45 days. For the full sequence, see how closing works in Hampton Roads, step by step, and see our walk-through checklist.

Can you waive escrow?

• FHA: no. Monthly tax and hazard insurance payments are required (24 CFR 203.23).
• USDA guaranteed: no. Lenders must escrow taxes and insurance (7 CFR 3555.252).
• Higher-priced mortgages (on a conforming first mortgage, an APR at least 1.5 points above the average prime offer rate): with limited exceptions, required for at least five years, then cancellable only if you owe under 80% of the original value and are current (12 CFR 1026.35).
• Conventional: lenders may waive it under a written policy, but Fannie Mae says a waiver cannot rest on loan-to-value alone, and borrower-paid mortgage insurance must stay escrowed. Ask whether a waiver changes your rate or fees.
• VA: lenders and servicers nearly always set one up; ask whether a waiver is offered.
• Flood: in a FEMA special flood hazard area, federally regulated lenders generally must escrow the flood premium on loans made since January 1, 2016 (for example, 12 CFR 339.5). Check a home's flood zone before you offer.

Waive it and you pay each installment and renewal yourself. Compare policies through our Hampton Roads lender directory.

Frequently Asked Questions

What is an escrow account in a mortgage?

An account your servicer manages. Each payment adds 1/12 of the year's property tax and insurance, and the servicer pays those bills when due.

Is escrow required?

Yes on FHA and USDA guaranteed loans, and for at least five years on higher-priced mortgages. On conventional and VA loans it is lender policy, and most buyers have one.

What does PITI stand for?

Principal, interest, taxes and insurance.

What is escrow at closing?

The period from ratified contract to settlement, while a neutral escrow holder keeps your deposit and closing funds.

Why did my escrow payment go up?

Usually a higher assessment or insurance premium. Any shortage can be spread over at least 12 months.

Can I get an escrow refund?

Yes. A surplus of $50 or more must be refunded within 30 days of the analysis if you are current.

Who handles closing in Virginia?

The settlement agent you choose: an attorney, a title company or agent, a broker or a financial institution. The seller cannot require a particular one.

How much money sits in my escrow account?

Enough for the next bills plus a cushion of no more than 1/6 of the year's escrow bills, about two months.

Sources & further reading

• CFPB: Regulation X, 12 CFR 1024.17 (escrow accounts)
• CFPB: What is an escrow or impound account?
• CFPB: What is PITI?
• CFPB: 12 CFR 1026.35 (higher-priced mortgages)
• CFPB: 12 CFR 1026.38 (Closing Disclosure)
• Va. Code § 54.1-2108.2 (earnest money)
• Va. Code § 55.1-1003 (settlement agents)
• Va. Code § 55.1-1006 (choice of settlement agent)
• Va. Code § 55.1-1008 (trust accounts)
• Va. Code § 58.1-3292 (new buildings)
• 24 CFR 203.23 (FHA)
• 7 CFR 3555.252 (USDA)
• 12 CFR 339.5 (flood escrow)
• Fannie Mae Selling Guide B2-1.5-04
• Freddie Mac PMMS
• Virginia Beach Treasurer: Real estate taxes

Information reflects federal rules, Virginia law, local tax rates and VaHome market data as of October 2026. General information, not legal or tax advice; confirm details with your lender, servicer or settlement agent.