An Escrow Account is something that is established on your behalf when you buy a home and use a VA Loan. There’s no option to “not” have an Escrow account – so the questions we get from Veteran’s is really more like, if the bank is keeping our money – do we get interest on the VA Loans and Escrow Accounts? So the short answer to that is no. On the other side of the question could be, is the Bank MAKING money on my escrow account? Well, in North Carolina you can’t earn interest on money you are holding in Escrow, so again, the answer is no.
As I’ve said before – there are VA Rules set out by the Veteran’s Administration, and then there are the underwriting rules that every bank we sell the loan to will add on. The Official VA loan underwriting guidelines do NOT require escrow accounts, but they also do not forbid the lender from requiring one.
A VA Loan escrow account is normally established and used by the bank to collect and pay taxes, insurance and any condo or homeowner dues being collected with your payment. The trick is to make certain that you don’t over pay into the account so that the lender owes you money at the end of the year.
According to VA Pamphlet 26-7, Chapter Nine, “VA does not require the lender to establish escrow accounts for the collection and payment of property taxes, Homeowner’s insurance premiums, and similar items. However, it is the lender’s responsibility to ensure that these items are paid timely.” That’s why a lender may require escrow, in general. Escrow accounts are required by everyone we sell a loan to for any loan that does not have at least 20% equity. So, VA Loans, USDA Home Loans, FHA Loans all have escrow accounts.
Lenders who use escrow accounts are required to comply with all Real Estate Settlement Procedures Act (RESPA) requirements, but one thing Chapter Nine does not mention in any way is whether the escrow account must be interest-bearing. This would be up to the lender, and in over 25 years – we’ve never seen a situation where we had a bank paying money on the account.
Further research on the subject of interest payments on escrow accounts reveals something interesting at FHA.gov; according to that site, legislation was introduced in the early 1990s that would have required interest payments on escrow accounts, but the law never passed. HUD cannot, and does not, require lenders to pay interest on these accounts.
If you have questions about VA Loans and Escrow Accounts or about purchasing a home and using your VA Home Loan Benefits – please call Steve Thorne 919-649-5058 NC’s VA Mortgage Loan Expert – we have the BEST rates!