Escrow accounts are established for every VA mortgage. Called “impound” accounts on the West Coast, they pay the annual or bi-annual property taxes when due, insurance and any homeowners association fees taken from monthly payments from the borrower. When a mortgage payment is made, it includes not only the principal and interest payment but one-twelfth of the annual homeowners insurance and taxes.
If property taxes are $1,200 per year, each month $100 is deposited into the property tax escrow account. The servicer, the entity where your mortgage payments are sent, collects the escrow payments and pays property taxes on your behalf when due. Your property taxes will never be late nor will your insurance lapse due to non-payment.
Having escrow accounts are one of several reasons VA mortgages have the lowest default rates of any other mortgage in today’s market. Not only is the veteran evaluated based upon the ability to pay the mortgage but the home will always be insured and property taxes paid on time, every time.
At the initial closing, lenders are allowed to take an additional two months’ worth of escrow payments and no more. Some lenders don’t collect any additional escrow payments at all, just the ones due with the first mortgage payment. Unlike other loan types, escrow accounts on VA loans can’t be cancelled, as long the VA mortgage is active, escrow accounts will accompany the loan.