What Is Escrow? A Texas Buyer's Plain-English Guide
Escrow during the home purchase, escrow accounts after closing, and how Texas escrow practices differ from other states.
Two different things called 'escrow'
In Texas, 'escrow' usually refers to one of two things: (1) the period between a signed contract and closing, during which a neutral third party (the title or escrow company) holds money and documents, or (2) the monthly account your lender uses after closing to collect and pay your property taxes and homeowners insurance.
Escrow during the home purchase
Once a contract is signed, the buyer delivers earnest money — a good-faith deposit — to the title company. The title company also holds the option fee (if any), reviews title, prepares closing documents, and disburses funds at closing.
Texas buyers have the legal right to choose their title company. Title fees vary; comparing two or three companies can save several hundred dollars on closing costs.
Escrow accounts after closing
Most Texas lenders require an escrow account on government-backed loans (FHA, VA, USDA). Each month, a portion of your mortgage payment goes into the escrow account so the lender can pay your property taxes and insurance when those bills come due.
On conventional loans with at least 20% down, you may be able to waive escrow and pay taxes and insurance yourself — but it requires strict cash-flow discipline.
Escrow shortages and surpluses
Once a year, your lender performs an escrow analysis. If property taxes or insurance rose, you may owe a shortage; if they fell, you receive a refund. In Texas, where appraised values move quickly, escrow shortages are common in years after a value increase.
Common questions
Is earnest money refundable?+
Can I choose my own title company in Texas?+
Official sources
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