Do VA Loans Require an Escrow Account?
February 02, 2011 
Bruce Reichstein 
When a VA borrower applies for a VA mortgage and closes the deal, they’re responsible for more than just making their monthly mortgage payments on the VA loan.
There are property taxes to pay, hazard insurance premiums and other items that may be required in the terms of the loan. Timely payment of these items–especially property taxes–is crucial and the Department of Veterans Affairs tasks the lender with the responsibility of making sure such payments are made in a timely manner.
That is one reason why many lenders may require an escrow account for a VA loan applicant–it gives the lender the ability to pay the required taxes and insurance without waiting for the borrower to send in payments. Escrow accounts are not required by the VA, but the lender may require it as a condition of the loan.
When escrow accounts are required, the lender must operate the account according to the laws of the Real Estate Settlement Procedures Act or RESPA.
Those laws include a full disclosure requirement. The lender must furnish the buyer with an “initial escrow account statement”, listing all the activity that will happen on the escrow account including payments made by the borrower and disbursements from the account.
RESPA laws require the initial escrow account statement to be furnished when the loan closes or within 45 days of closing. The lender must also supply an annual account of the escrow activity plus any changes for the coming year.
Again, the VA does not require the use of an escrow account and your lender may have flexible options when it comes to making these payments as part of your VA loan. But in many cases the escrow account does make it simpler to manage routine-but-essential payment issues like property taxes.
VA guidelines, VA loans 
Tags: Department of Veterans Affairs, eligibility, military service, new home, occupancy, real estate agent, VA, VA application, VA benefits 
Of course, the flip side is that you are giving your money to the lender to hold for you for a full year until your property taxes come due. That is a full year of lost interest on your money. If you have the self-commitment, you can pay your own property taxes–and other escrow amounts–into a special income-bearing account, and then pay the escrowed amount yourself. You actually will make money this way instead of letting the bank make money on your money. I agree, however, that a person needs to have a firm commitment to do this and keep his hands off that money except to pay that for which it was intended. And, these days, banks aren’t paying great interest, but a little is better than none.
I’ve paid my own taxes and insurance for years and having the flexibility to manage my own money is a huge plus that most people just walk away from. It’s your money folks, don’t give free loans. In New Hampshire our property taxes are outrageous and I don’t know who in thier right mind would give anyone a 12K interest free loan.