Why Desert Financial collects escrow and how it works 

In this article: 

• What is an escrow account? 
• Why lenders require escrow 
• How Desert Financial calculates your escrow payment 
• How escrow protects you 
• Common misunderstandings about escrow 

If your mortgage includes an escrow account, Desert Financial manages it on your behalf to ensure that your property taxes, homeowners insurance and mortgage insurance premiums (if applicable) are paid on time. Many homeowners wonder why lenders collect escrow in the first place, how the amount is determined and what happens when these costs change. Understanding how escrow works can help you anticipate adjustments and feel confident in how your mortgage payment is calculated. 

This guide explains why escrow is required, how we manage it and what you can expect throughout the year. 

What is an escrow account? 

An escrow account is a separate balance within your mortgage account that Desert Financial uses to pay certain bills associated with your home. Each month, a portion of your mortgage payment is deposited into escrow. When tax or insurance bills come due, we use those funds to pay them for you. Escrow typically covers: 

• Property taxes
• Homeowners insurance
• Mortgage insurance premiums (if required)
• Flood insurance (if applicable)

Escrow accounts make it easier for homeowners to manage large annual or semiannual expenses by spreading them over smaller monthly payments. 

Why lenders require escrow 

Lenders often require escrow accounts on many types of mortgages to protect both the homeowner and the financial institution. Ensuring that taxes and insurance are paid on time reduces risk and prevents serious issues such as tax liens, uninsured losses or forced-placed insurance. 

Here are the main reasons escrow is required: 

To ensure property taxes are paid 

Unpaid property taxes can result in liens against your home. By collecting escrow, Desert Financial ensures: 

• Your taxes are paid on schedule.
• You avoid penalties from your county.
• Your home remains free from tax liens. 

This protects your ownership and your financial stability. 

To ensure your home stays insured 

Lenders require active homeowners insurance throughout the life of the mortgage. Escrow helps guarantee: 

• Your policy stays current.
• Premiums are paid before expiration.
• You avoid coverage lapses.
• You remain protected from unexpected losses. 

If coverage lapses, lenders may place temporary insurance to protect the property, which is significantly more expensive. Escrow helps prevent this. 

To comply with federal guidelines 

Many government-backed loans (FHA, VA, USDA) require escrow accounts regardless of the borrower’s preference. Even for conventional loans, escrow is commonly required when: 

• You make less than a 20% down payment
• PMI is required
• Taxes or insurance costs fluctuate significantly
• State or investor guidelines mandate it

Escrow is a standard part of most modern mortgages. 

How Desert Financial calculates your escrow payment 

Your monthly escrow amount is based on the projected cost of your property taxes, homeowners insurance and mortgage insurance premiums over the next 12 months. 

Here’s how we calculate it: 

Step 1: Estimate tax and insurance costs for the coming year 

These projections determine how much your escrow account must hold. We review: 

• County tax data
• Insurance renewals
• Policy updates
• Previous payment history 

Step 2: Apply federal escrow requirements 

This cushion helps prevent shortages when taxes or insurance increase unexpectedly. Federal regulations allow lenders to maintain: 

• A full year’s worth of projected escrow expenses
• A cushion of up to two months of escrow payments

Step 3: Divide the total by 12 months 

Your total projected costs are divided into 12 monthly installments. This amount is added to your principal and interest to create your full mortgage payment. 

Why your escrow payment might change 

Escrow payments change because the underlying costs — taxes and insurance — change. Desert Financial does not control these amounts. Your payment may change due to: 

• Higher homeowners insurance premiums
• Increased county or municipal tax rates
• Changes in your property’s assessed value
• Lender-required insurance (flood or force-placed)
• An insurance carrier switch or refund
• Corrections or supplemental tax bills

These changes are reflected in your annual escrow analysis, which adjusts your escrow payment for the next year. 

What happens during the annual escrow analysis 

Each year, Desert Financial performs an escrow analysis to compare: 

• What we projected
• What your actual bills cost
• What your new projected costs will be

The analysis determines whether you have: 

• Escrow shortage: Not enough funds were collected last year. 
• Escrow surplus: More funds were collected than needed. 
• Escrow deficiency: Your escrow went negative and Desert Financial advanced funds on your behalf. 

Shortages and surpluses are extremely common and are a normal part of homeownership. 

How escrow protects you 

Escrow is designed to make homeownership easier, not more complicated. Escrow accounts provide several benefits: 

• Predictable monthly payments: You pay smaller amounts over the year instead of large lump sums. 
• On-time tax and insurance payments: Desert Financial pays your bills for you before they are due. 
• Avoiding penalties: Escrow prevents late fees, lapses or coverage cancellations. 
• Simplified budgeting: You don't have to track due dates or large bills. 
• Protection from unexpected increases: The escrow cushion helps absorb rising costs from year to year. 

Common misunderstandings about escrow 

Understanding the basics helps you read your escrow analysis with confidence. Here are a few points that often cause confusion: 

• Desert Financial does not set your taxes. Your county assessor determines your taxes. 
• Desert Financial does not set your insurance premiums. Your insurance carrier determines your rates. 
• Escrow can change even if you made no changes. Tax and insurance costs fluctuate independently. 
• A surplus does not guarantee your payment will drop. Your upcoming projections may still increase. 
• A shortage does not mean you did something wrong. It simply reflects real-world cost changes. 

When to contact Desert Financial 

We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if: 

• Your escrow payment changed and you want help understanding why. 
• Your insurance premium increased significantly.
• Your property taxes changed unexpectedly.
• You received a tax correction or supplemental bill.
• You switched insurance carriers.
• You received an insurance refund check.
• You believe your escrow analysis may be incorrect.