By Trisha Atwood
Escrow shows up twice in a typical Texas home purchase, and the two uses aren't the same thing. During closing, a title company acts as escrow agent, holding funds and documents until every condition of the sale is met. After closing, most buyers also open an ongoing escrow account with their lender to cover property taxes and insurance. Buyers in the Southlake market often confuse the two, and I find that understanding the difference early makes the rest of the process easier to follow.
Key Takeaways
- Learn what a title company does as the escrow agent during a Texas closing.
- Understand how an ongoing mortgage escrow account covers property taxes and insurance.
- Find out when escrow is required on a loan and when it can be waived.
- Discover what happens during an annual escrow analysis.
The Title Company Acts as Escrow Agent During Closing
Texas is considered an escrow state, meaning a neutral third party, almost always the title company, holds funds and documents until every condition of the sale is satisfied. This role starts once the contract is signed and continues through closing.
What the Title Company Handles as Escrow Agent
- Holding the buyer's earnest money and the seller's signed deed until closing
- Collecting and distributing funds, including loan proceeds, down payment, and agent commissions
- Confirming inspections, repairs, and other contract conditions are complete before releasing anything
- Simultaneously releasing funds to the seller and the deed to the buyer at closing
Because neither party can access the funds or the deed independently, this structure protects both sides until the deal is finished. It's one of the reasons a Texas closing rarely happens without a title company involved.
A Mortgage Escrow Account Covers Taxes and Insurance After Closing
Once the home is purchased, a different kind of escrow account often comes into play. Most lenders set one up to collect money toward property taxes and homeowner's insurance throughout the year.
How a Mortgage Escrow Account Works
- The lender calculates annual property tax and insurance costs and divides the total by 12
- That amount is added to principal and interest to form the full monthly payment, often called PITI
- The lender holds the funds and pays taxes and insurance directly when they come due
- Texas property taxes tend to run high, which often makes escrow payments larger here than in other states
This account exists to prevent a large, unexpected tax or insurance bill from catching a homeowner off guard. It also means property tax increases show up as a change in the monthly mortgage payment rather than a separate bill.
Escrow Requirements and the Annual Analysis
Not every loan requires an ongoing escrow account, and the ones that do get reviewed every year. Both details affect what a buyer can expect after closing.
What to Know About Escrow Requirements and Reviews
- Required for the life of the loan on FHA, VA, and USDA loans
- Often required on conventional loans with less than 20 percent down
- Optional to waive on conventional loans with 20 percent or more down
- Reviewed annually, with shortages raising the payment and surpluses issued back as a refund
Because Texas requires this annual review, a rising property valuation can lead to a higher monthly payment even if the mortgage rate never changes. It's worth expecting some movement in this number every year rather than treating the initial payment as fixed.
Frequently Asked Questions
Can I choose which title company handles escrow for my purchase?
Yes. Buyers and sellers can negotiate which title company is used, though it's common for the contract to name one upfront. I can recommend title companies I've worked with if a buyer doesn't already have a preference.
What happens to escrow funds if a deal falls through?
The title company holds the funds until the contract's terms determine where they go, whether that means returning them to the buyer or releasing them to the seller. This depends on the specific reason the deal didn't close and what the contract allows.
Will my escrow payment stay the same every year?
Not necessarily. Because property taxes and insurance costs change, the annual escrow analysis can raise or lower the monthly payment based on those updated figures. This is separate from any changes to the loan's interest rate.
Contact Trisha Atwood Today
Escrow touches almost every part of a Texas purchase, from the moment a contract is signed through the years a buyer owns the home afterward. Understanding both sides of it, the closing process and the ongoing tax and insurance account, helps buyers budget more accurately from the start.
If you have questions about how escrow will work for your
Southlake home purchase, reach out to me,
Trisha Atwood, and I can walk you through what to expect at closing and after.
