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September 1, 2026
An escrow account is a separate account held by your mortgage servicer that collects and pays certain property-related expenses on your behalf — most commonly property taxes and homeowners insurance. Instead of paying those large bills yourself once or twice a year, you contribute a portion of the total each month as part of your mortgage payment, and your servicer makes the payments when they come due.
Escrow accounts are sometimes called impound accounts, particularly by lenders on the West Coast, but the function is identical. For most conventional loans — and virtually all FHA and VA loans — escrow is required, not optional.
A standard mortgage escrow account covers your property taxes and homeowners insurance premium, the two largest recurring costs tied to homeownership beyond principal and interest. If your property is in a flood zone — which applies to certain low-lying areas near the Christina River and other waterways in the Newark, DE region — flood insurance is also escrowed when required by your lender.
Some escrow accounts also include private mortgage insurance (PMI) if your down payment was less than 20%. Your monthly escrow contribution is recalculated annually at your escrow analysis review, so the amount can shift slightly from year to year as tax assessments and insurance premiums change.
Your servicer adds up the total annual cost of your escrowed items — property taxes plus insurance premiums — then divides by 12 to arrive at your monthly escrow contribution. Federal law (RESPA) permits servicers to hold a cushion of up to two months’ worth of escrow payments as a reserve against shortfalls.
For example, if your annual New Castle County property tax bill is $3,600 and your homeowners insurance premium is $1,200 per year, your baseline escrow contribution would be $400 per month — before the cushion. Your Loan Estimate and Closing Disclosure will show this figure broken out clearly so there are no surprises at the closing table.
At closing, you will typically prepay several months of escrow to fund the account upfront. This is separate from your down payment and closing costs, and it catches many first-time buyers off guard. Pike Creek Mortgages, an NMLS Licensed Lender serving Newark, DE and the surrounding communities, walks every borrower through the Closing Disclosure line by line so the escrow prepaids are never a last-minute surprise.
In Delaware, buyers should also be aware of the state’s real estate transfer tax, which is split between buyer and seller but does not flow through the escrow account — it is paid at settlement. Your escrow account only activates for ongoing recurring costs after closing, not one-time transaction fees. For a deeper look at what to expect on settlement day, see our full guide to Delaware closing costs.
An escrow shortage occurs when your actual tax or insurance bills come in higher than what was collected during the year, leaving a negative balance in your account. Your servicer will notify you in an annual escrow analysis statement and typically offer you two options: pay the shortage as a lump sum or spread the amount across the next 12 months, which raises your monthly payment slightly.
An escrow surplus — meaning more was collected than needed — works in your favor. Under RESPA, if your surplus exceeds $50, your servicer is required to refund the difference to you. If it is under $50, they may apply it to next year’s account instead. Either way, keep an eye on your annual escrow analysis letter; it arrives once a year and is worth a few minutes of attention.
Some lenders will waive the escrow requirement for borrowers who have at least 20% equity and a strong payment history, though this is lender-specific and often comes with a small fee called an escrow waiver fee. If you waive escrow, you become fully responsible for paying your property taxes and insurance directly and on time — missing either can trigger a lender force-place insurance policy, which is significantly more expensive than a standard homeowners policy.
Whether an escrow waiver makes sense depends on your financial habits and cash flow preferences. Pike Creek Mortgages can walk you through the tradeoffs specific to your loan type and situation — FHA and VA loans, for instance, do not permit escrow waivers under most circumstances.
For FHA loans, escrow is mandatory for the life of the loan regardless of how much equity you have — there is no waiver option. For VA loans, escrow is also generally required, though the VA does not charge PMI, so only taxes and insurance flow through the account. Both loan types include a mortgage insurance component (MIP for FHA, a one-time funding fee for VA) that is handled separately from the escrow account.
Delaware’s relatively moderate property tax rates — New Castle County is among the lower-tax counties compared to neighboring Pennsylvania and New Jersey — can make monthly escrow contributions more manageable than buyers relocating from those states expect. As an NMLS Licensed Lender, Pike Creek Mortgages structures escrow estimates using actual county tax data, not regional averages, so your initial projections are as accurate as possible.
The most common surprise is the upfront escrow prepaids due at closing — often 2 to 3 months of taxes and 12 to 14 months of homeowners insurance collected in advance. This can add $3,000 to $6,000 or more to your closing day funds depending on your purchase price and local tax rate. It is real money, and it belongs in your savings plan from the beginning.
Beyond closing, watch for these situations that commonly trigger escrow adjustments:
As covered in our mortgage payment breakdown guide, understanding every line of your monthly payment — principal, interest, taxes, and insurance — puts you in a much stronger position to spot errors and plan ahead.
This guide was prepared by Pike Creek Mortgages, an NMLS Licensed Lender serving Newark, DE and communities throughout New Castle County and the greater Delaware region.
An escrow account is a holding account managed by your mortgage servicer that collects monthly contributions from you and then pays your property taxes and homeowners insurance when those bills come due. Lenders require it to protect their collateral — an uninsured or tax-delinquent property puts their investment at risk.
Most Delaware homebuyers should budget for 2 to 3 months of prepaid property taxes and 12 to 14 months of homeowners insurance at closing to fund the escrow account — often totaling $3,000 to $6,000 or more depending on the purchase price and New Castle County tax rate. Your Closing Disclosure will show the exact figures before settlement day.
If your taxes or insurance come in higher than projected, your servicer will notify you in an annual escrow analysis and give you the option to pay the shortage as a lump sum or spread it across the next 12 months, slightly increasing your monthly payment.
Borrowers with at least 20% equity may be able to request an escrow waiver on conventional loans, though lenders may charge a small fee and you become responsible for paying taxes and insurance directly. FHA and VA loans generally do not allow escrow waivers.
Delaware does not require mortgage servicers to pay interest on escrow account balances, so in most cases your escrowed funds do not earn interest while held by the servicer. This is one reason some borrowers with strong financial discipline prefer to waive escrow when their lender allows it.