Do VA Loans Require an Escrow Account?
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.