Escrow Calculator

1. Enter Annual Property Tax. Find this on your county assessor's website or your most recent property tax bill. For a home you are purchasing, ask the seller or agent for recent tax statements. Taxes can change when ownership transfers, especially in states with assessment caps that reset on sale.
2. Enter Annual Homeowners Insurance. Get a quote from your insurance agent before closing. National average is around $1,400 to $2,000 per year, but it varies dramatically by location, home value, and coverage level. Flood and earthquake insurance are separate policies not included in standard homeowners insurance.
3. Enter Home Value and Loan Amount. These are used to calculate LTV (loan-to-value ratio) and determine whether PMI applies. If you put less than 20% down, your LTV exceeds 80% and conventional loans require PMI.
4. Enter your Principal and Interest payment. This is the base mortgage payment not including taxes, insurance, or PMI. Use a mortgage calculator to find this number if you do not already have it.
5. Review total PITI. PITI stands for Principal, Interest, Taxes, and Insurance. Lenders use PITI to calculate your debt-to-income ratio. Most want PITI to stay under 28% to 31% of gross monthly income.

An escrow account collects monthly installments for property taxes and homeowners insurance so that when annual or semi-annual bills arrive, the funds are ready. The servicer pays these bills on your behalf. Most lenders require escrow for conventional loans with less than 20% down, and for all FHA and VA loans.

Monthly Escrow = (Annual Property Tax / 12) + (Annual Insurance / 12) + Monthly PMI

PMI applies when LTV > 80%
LTV = Loan Amount / Home Value × 100

Monthly PMI ≈ (Loan Amount × 0.85%) / 12
  (Range: 0.5% to 1.5% depending on credit and LTV)

Total PITI = Principal + Interest + Monthly Escrow

Worked example: $320,000 loan, $400,000 home value, $4,200 annual tax, $1,800 annual insurance, $1,850 P&I payment.

LTV = $320,000 / $400,000 = 80% (no PMI needed)

Monthly Tax      = $4,200 / 12 = $350
Monthly Insurance= $1,800 / 12 = $150
Monthly Escrow   = $350 + $150 = $500

Total PITI = $1,850 + $500 = $2,350/month

Escrow cushion: Lenders collect 2 months of escrow payments upfront at closing as a reserve. On the example above, that is $1,000 in addition to regular closing costs. This cushion ensures funds are available even if a tax bill arrives before a full year of monthly payments has accumulated.