Buying your first home in Maryland is an exciting milestone. It also comes with plenty of new terms to learn along the way. Escrow is one of them.
Thankfully, escrow is simpler than it may sound. It’s a process that helps protect your money during the homebuying journey and make some of your ongoing home expenses easier to manage. Here’s what to know before you get to the closing table.
What is escrow?
Think of escrow as a safe place for money that needs to be held until it’s time to use it. When you buy a home, you’ll typically encounter escrow in two ways: before you close and as part of your monthly mortgage payment after you become a homeowner.
Before closing, escrow protects you and the seller
Once a seller accepts your offer, you may make an earnest money deposit, or EMD. This shows the seller you’re serious about buying the home. Instead of going directly to the seller, that money is held in escrow.
- Your earnest money deposit is often between 1% and 3% of the home’s purchase price.
- When you complete the sale, the deposit is applied toward your home purchase.
- If the sale doesn’t close, your purchase contract determines what happens to the money.
This is one reason it’s important to understand your purchase contract before you make a deposit. Knowing the terms can help you understand when your earnest money is protected and what happens if your plans change.
After closing, escrow helps manage ongoing costs
Once you have the keys, escrow can take some recurring home expenses off your monthly to-do list.
Your lender or mortgage servicer estimates certain annual expenses, such as property taxes and homeowners insurance, and divides the total into monthly contributions.
- Your lender estimates your annual property taxes and insurance premiums.
- The lender divides that estimated total into 12 monthly payments.
- You contribute to your escrow account as part of your monthly mortgage payment.
- Your lender uses the money in the account to pay eligible tax and insurance bills when they’re due.
Instead of planning for a few larger bills during the year, you can spread those costs across your monthly payments.
What is escrow analysis?
Your property taxes and insurance premiums can change from year to year. This means the amount you need in escrow can change, too.
That’s where an escrow analysis comes in. An escrow analysis is an annual review of your escrow account that compares the amount your mortgage servicer expects to pay for expenses like property taxes and homeowners insurance with the amount you’re contributing.
- If taxes or insurance costs increase, you may have an escrow shortage and need to contribute more.
- If costs decrease, you may have an escrow surplus. Depending on the amount and applicable requirements, you may receive a refund or have the surplus applied to future escrow payments.
- Your payment for the year ahead reflects the lender’s updated estimates.
Your servicer will provide an annual statement explaining the results. If you want to get familiar with yours before it arrives, see our guide on how to read your SECU escrow statement.
What should Maryland homebuyers know about escrow?
Maryland has requirements designed to help protect money held in escrow. These requirements address how certain escrow funds are held, when they can be released, and who can manage them.
- Dedicated escrow accounts: Escrow funds must be kept separate from certain other funds as required by Maryland law.
- Clear disbursement requirements: Escrow funds are released according to the terms and conditions of the transaction.
- Qualified professionals: Maryland regulates the professionals and businesses that may handle certain escrow funds, adding oversight and accountability to the process.
The details can vary depending on the transaction. But you don’t have to become an escrow expert before buying a home. Your lender, real estate agent, and other professionals involved in your purchase can help you understand what applies to you.
How can escrow make homeownership easier?
Owning a home comes with more than a mortgage payment. There are property taxes, insurance, maintenance, and plenty of other expenses competing for space in your budget.
Escrow can make two of those big expenses easier to plan for.
- You spread eligible tax and insurance costs across monthly payments instead of preparing for larger bills on your own.
- Your servicer pays eligible tax and insurance bills from your escrow account when they’re due.
- Your escrow contribution is typically included in your overall monthly mortgage payment, giving you fewer separate payments to manage.
Think of it as one less thing to keep track of while you settle into your new home.
Just remember that your escrow payment can change when property taxes, insurance premiums, or other eligible expenses change. Reviewing your annual escrow analysis can help you understand those adjustments and plan ahead.
In some cases, you may be able to waive escrow and manage property taxes and insurance payments yourself. That gives you more direct control, but you’ll also need to budget for those expenses and make each payment when it’s due.
What could escrow cost on a Maryland home?
Escrow is easier to understand when you can put some numbers behind it.
Your actual costs will depend on your home, location, insurance coverage, loan terms, and other factors. But here’s an example of how escrow could fit into the monthly budget for a Maryland homebuyer.
For a home purchased at Maryland’s August 2026 median sales price of $445,000, let’s assume*:
- Home price: $445,000
- Down payment: $44,500, or 10%
- Estimated loan amount: $400,500
- Loan term: 30 years
- Interest rate: 5%
Based on those assumptions, here’s how the estimated monthly costs could break down.
Monthly cost | Estimated amount |
Property taxes | $393 |
Homeowners insurance | $125 |
Estimated monthly escrow | $518 |
Private mortgage insurance (PMI) | $334 |
Mortgage principal interest | $2,764 |
Estimated total monthly payment | $3,616 |
In this example, the $518 monthly escrow payment sets aside money for property taxes and homeowners insurance. Your lender or mortgage servicer uses the money in your escrow account to pay those bills when they’re due.
PMI is separate from the $518 escrow estimate. If you put less than twenty percent down, your lender may require private mortgage insurance. The example above uses a one percent annual PMI rate, but your actual cost will depend on factors such as your down payment, credit profile, and loan terms.
The amount you need to fund your escrow account at closing can also vary based on factors such as when your property taxes and insurance bills are due. Your loan documents will show the amount that applies to your purchase.
The important number is the one that fits your homebuying budget. Looking at the full monthly cost before you make an offer can help you understand what feels comfortable, not just what you may qualify to borrow. Estimate your mortgage payment with our calculator.
Take the next step toward homeownership
Learning the language of homebuying can make the road to your first home feel a little easier to navigate. And escrow is only one piece of the process.
When questions come up, it helps to have someone local in your corner. Our mortgage professionals understand the Maryland housing market and can guide you through the homebuying process, from understanding your monthly costs to getting ready for closing.
Explore our mortgage options, learn more about escrow, or connect with our team when you’re ready to take the next step.
Frequently asked questions about escrow
Can you have an escrow account without a mortgage?
Yes. Escrow isn’t limited to mortgages. Escrow arrangements can be used in other transactions where a neutral third party holds money or assets until agreed upon conditions are met.
What is the difference between escrow and vs. equity?
They may both come up when you talk about homeownership, but escrow and equity are very different.
Escrow is money held to cover certain expenses or satisfy conditions related to your home purchase or mortgage.
Equity is the difference between your home’s value and the amount you owe on your mortgage. As your equity grows, you may be able to borrow against it through options such as a home equity loan or home equity line of credit.
How long can escrow take?
During a home purchase, the time between an accepted offer and closing often lasts several weeks. A lot happens during that stretch, including steps such as inspections, an appraisal, and mortgage approval.
Every home purchase is different, so your timeline will depend on your contract, financing, and other details of the transaction.
