When you get your first mortgage, you’ll hear a lot about escrow accounts. That’s the bucket your lender uses to collect property taxes and insurance so they can pay those bills for you when they come due.

What most first-time buyers don’t realize is that your lender will often require extra money upfront to seed that account — and it’s not just the math you think. Thanks to federal rules, they can tack on an extra cushion that adds hundreds (sometimes thousands) to your closing costs.

Why Escrow Exists

Your lender wants to make sure your tax bill and insurance premiums are paid on time. If you skip a tax bill, the county can place a lien on your home — and that’s a risk for the bank too. So, they make sure the money is set aside every month.

But if your tax bill is due in December and you only start your mortgage in July, you won’t have made enough payments by the time the bill is due. To cover that gap, the lender collects several months of property taxes upfront at closing.

The Cushion Rule

Here’s the part most buyers don’t know: under RESPA (Real Estate Settlement Procedures Act), lenders are allowed to collect up to two extra months of escrow payments beyond what’s actually needed. This is called the cushion.

It’s basically a buffer to make sure the account never goes negative if your tax bill goes up slightly or your insurance premium increases.

Example: $6,000 Annual Taxes

  • Monthly tax portion = $500
  • Close in July → By December you’ll only have made 5 payments ($2,500).
  • The December bill is $6,000. That means the lender is short by $3,500.
  • To fix this, they collect that $3,500 at closing.
  • But under RESPA, they can also collect two more months ($1,000) as a cushion.

Total collected upfront = $4,500 just for property taxes.

Why This Matters for Buyers

If you’re expecting to bring your down payment and a few thousand in fees, finding out you owe an extra $4,000–$5,000 just for escrow can be a gut punch. That’s why so many buyers find themselves scrambling for last-minute funds.

House Karma Tip

Always assume your lender will require the full amount plus 2 months. Budget for that worst-case scenario. If it comes in lower, you’ll be pleasantly surprised. If it comes in higher, you’ll be prepared.

Bottom line: Escrow cushions are legal, standard, and often misunderstood. Knowing they’re coming keeps you from being blindsided on closing day.