Q: What is an escrow account? When is having one useful or necessary?

A: An escrow account is like a savings account that is established at closing to collect money to pay for your taxes and homeowner’s insurance on your new home. When the tax and insurance bills are due, your lender pays those bills out of your escrow account.

It is useful to have an escrow account just out of sheer convenience. Your lender will handle all tax and insurance payments while being accountable to you for all funds dispersed. At the end of the year, your lender will send you a statement reflecting the money collected and dispersed toward your taxes and insurance.

Some folks decide not to have an escrow account, choosing instead to assume the responsibility of paying annual taxes and hazard insurance themselves. This allows you to better manage those funds throughout the year. It takes good financial discipline both to set aside funds each month for the future and to remember that there will be two large bills to pay at the end of the year. Opening an escrow account can help manage that financial risk.

— Jeff Denning, RE/MAX Associates Northeast, 281-451-7089