VA guidelines

VA Loan Reader Questions: Is an Escrow Account Required?

June 3, 2013

VA Loan Reader Questions: Is an Escrow Account Required?


A reader asks, “I just finalized our refi using VA loan at 15yrs fixed with 2.25 interest rate. I asked the lender about paying the property tax and home insurance–if I need to have an escrow account. They said it is required on VA loan. I have setup a saving account for this purpose but I’m unable to use it, because i want to send the payments to this account in order to pay for the taxes and home insurance. Please advise.”

The rules for escrow accounts for a VA home loan are simple. The Department of Veterans Affairs does not require the borrower to use escrow as a condition of VA loan approval, but the lender is free to do so.

Since the VA loan program is voluntary and requires the participation of the lender, the Department of Veterans Affairs cannot force a lender to use or not use escrow; it is strictly up to the policies of the financial institution in question. There is nothing illegal about a bank requiring a borrower to use escrow.

However, one thing that should be pointed out is that in some cases there have been reports of lenders claiming that the Department of Veterans Affairs requires the use of an escrow account. Is this true?

The VA official site prints the following about escrow: “VA does NOT require lenders to maintain escrow accounts. VA does require that lenders ensure that the property is covered by sufficient hazard insurance at all times and that property taxes are paid. Most lenders decide to use escrow accounts to do this, but they are not required by VA and VA has no standards governing them.”

That is the final word on escrow where the VA is concerned. For further information on VA home loan escrow issues, the VA reminds borrowers that escrow accounts are governed by The Real Estate Settlement Procedures Act, “which is administered by the US Dept. of Housing and Urban Development.

Do you have questions about VA loans? Ask us in the comments section.

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