VA guidelines VA loans

Do VA Loans Require an Escrow Account?

October 23, 2018

Do VA Loans Require an Escrow Account?

VA Minimum Property RequirementsWhen 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.

  1. Dan

    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.

  2. Russ

    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.

  3. Paoa

    Recently 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 and they said it is required on va loan. I have setup a saving account for this purpose but im 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 lender is Navy Federal Credit Union. Thank you, Paoa

    • Joe Wallace

      Participating VA lenders are free to require an escrow account under VA loan rules, but this is not a basic requirement of the VA loan program. The point being, the lender can still require you to use escrow even though it's not a baseline VA loan program requirement.

  4. Christina N.

    When I refinanced my current home years ago I opt out in having an escrow account. I HATE escrow accounts. Now that I found a new home and applied for a VA Loan, my lender is saying that I do not have a choice that all VA loans require an escrow. I'm not sure if this lender is just trying to earn interest off my money. Just wondering if anyone applied for a VA loan that didn't have to escrow. I'm still searching for that right lender and my deadline for closing is now crunch time.

    • Joe Wallace

      VA loan rules DO NOT require escrow, but the lender is free to require one. Did the lender mean all VA loans now require escrow at that particular financial institution?

  5. Carol

    We are wanting to refinance our VA loan and I am wanting to know if anyone knows of lenders that do not require an escrow account for my homeowners insurance and taxes.


    I'm approved for a VA loan. In order for me to get 3.87 interest rate I must pay $4900. Is this the case with all lenders or am I getting taken.

    • Joe Wallace

      That would depend greatly on why you're being asked to pay. There is such a thing as an "interest rate buydown" or a situation where a borrower can pay to purchase "points" on the loan in order to reduce the interest rate. Without knowing the specifics of your situation it's impossible to say what may be happening, but when in doubt you can always contact the VA directly at 1-800 827-1000 for assistance.

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