Question:

How big is the deposit escrow account?

Answer:

The deposit in the escrow account mostly depends on the lender. However, the limits on the escrow deposit are set by the Real Estate Settlement Procedures Act (RESPA).

The money deposited in an escrow account is used by the lender to pay taxes and insurance instead of the borrower. Borrowers are required to maintain an escrow account if they are paying PMI, or taking a government sponsored loan such as FHA and VA loans.

Sometimes a lender requires than the escrow account has an extra amount of funds, approximately two months extra escrow payments. That is, an escrow will hold several month escrow payments plus an escrow cushion of up to 2 month extra escrow payments. This cushion is not set by the RESPA. The Real Estate Settlement Procedures Act (RESPA) does not require lenders to use a cushion. Rather, lenders decide whether to use a cushion or not. RESPA only provides limits to the deposit in the escrow account.

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