Why do I need an escrow account?
Escrow account requirements for mortgages. Know when escrow is required versus optional and how lenders present this.
What You'll Learn in This Chapter
- Why lenders frame escrow requirements as benefits rather than acknowledging flexibility
- How to determine whether escrow is truly required or negotiable for your loan
- Scripts to clarify escrow terms and compare across lenders
You ask a lender why you need an escrow account. The lender responds: "Do you really want to manage your own property taxes and insurance? With an escrow account, we handle all of that for you. You don't have to worry about missing payments or late fees."
But, here's what's really happening...
Escrow Requirement Justification is a tactic where lenders frame escrow accounts as benefits or protections rather than acknowledging when escrow is optional. The loan officer's process is to make you feel like questioning escrow is risky or irresponsible, avoiding transparency about when escrow can be waived and what the actual costs or restrictions are.
As a shopper, your counter-process is to understand that escrow requirements vary by loan type, down payment, and lender policy. For conventional loans with 20%+ down, escrow is often optional—but some lenders prefer it for their own administrative convenience or may charge fees to waive it. When lenders emphasize escrow benefits without discussing flexibility, they're revealing they'd rather frame it as non-negotiable than compete on terms. Escrow may be required by regulation or genuinely beneficial—but you should compare terms across lenders to understand your actual options.
Now that you understand the tactic, let's look at how most people fall into the trap.
➡ How People Get Trapped
Most people respond with:
That makes sense. I don't want to worry about missing tax payments. Let's do the escrow account.
Don't do that.
When you accept escrow without understanding whether it's required or optional—or what the alternatives cost—you've made a decision without comparing terms across lenders. The lender's framing of escrow as protective is often accurate, but it shouldn't prevent you from understanding: Is escrow legally required for your loan? Can it be waived? What are the costs or rate impacts of waiving it? By accepting escrow as inevitable without comparison, you'll never know if other lenders offered more flexible terms or better pricing.
Understand escrow requirements before accepting them.
➡ What You Should Say Instead
I understand your explanation about escrow, and I'd like to understand the requirements. Can you provide me with a written Loan Estimate that shows whether escrow is required for my loan type, and what the options are if it's not required? I'd like to compare this with other lenders.
Here's why this is the right approach:
- Acknowledges escrow explanation without premature acceptance
- Asks directly whether escrow is required or negotiable
- Requests written documentation for comparison
- Recognizes that escrow policies vary by lender
The script treats escrow requirements as loan terms that should be compared across lenders, not accepted without question.
➡ See The Mortgage Script in Action
➡ Key Takeaway
Escrow requirements vary by loan type and lender policy. Get written Loan Estimates showing escrow terms from multiple lenders to understand whether escrow is truly required or negotiable—and what the costs are either way.
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