100% P&T Veterans and Escrow: What Still Rises When Property Tax Is Exempt

Skylar is a fictional veteran with a 100% permanent and total rating. She lives in a state that exempts her home from property tax, and she assumed that meant her escrow would stay put year after year. Then her annual escrow statement arrived showing an increase. Her first question was the one a lot of veterans ask: if I do not owe property tax, what is going up?

Skylar is an illustrative example, but the situation comes up often. Here is the full answer.

What is actually inside an escrow account

Escrow is a holding account your servicer uses to pay recurring bills on your behalf. On most home loans it covers property tax and homeowners insurance. If your home is in a flood zone, flood insurance can be in there too. Some loans also include mortgage insurance, but a VA loan has no monthly mortgage insurance, so that one is off the table for Skylar.

The property tax exemption for 100% P&T veterans targets only one of those pieces. It does not touch the others.

Why the exemption does not freeze the payment

Once the county approves the exemption and the tax line drops out, what is left is insurance. Homeowners premiums are set by the insurer and are reviewed at each renewal. When the premium changes, your servicer finds out, and the next yearly escrow analysis adjusts what goes into the account. Flood coverage works the same way.

There is also a timing issue. In many places the exemption has to be applied for and approved. Until the county processes it, the tax bill can still be showing up, and the servicer can keep paying it from escrow.

So how much does it rise?

Honestly, there is no universal number. I will not hand you a percentage, because it would be made up. With property tax out of the picture, the yearly change follows your insurance renewal and nothing else. A small renewal change means a small escrow change. A big one means a bigger one. Federal escrow rules also let servicers keep a modest cushion, up to two months of charges, and the yearly analysis can find a shortage or a surplus.

That is why two exempt veterans with the same rating can see very different escrow statements. Their insurance is different.

What Skylar does about it

Skylar takes four steps, and you can take them today:

1. She gets her VA rating letter out and confirms with her county that the exemption is approved and on file, not just assumed.
2. She checks that her servicer has stopped collecting property tax in escrow once the exemption applies.
3. She gets homeowners insurance quotes before each renewal and asks her current insurer what has changed.
4. She reads her escrow analysis line by line, so she knows whether a change is the premium, a shortage, or the cushion.

If an escrow shortage shows up, she can ask the servicer whether it can be spread out over time instead of collected all at once.

A note for the Charleston area

Here in Charleston, coastal homes can need flood coverage, so that line deserves extra attention. Exemption rules also vary by state and county, including what kind of home qualifies and how you apply, so confirm the details with your county before you rely on them.

Where I come in

If you are buying with a VA loan, or you already own and want to understand your escrow, I can walk through the account line by line with you. I am Jason Sharon, a licensed mortgage broker with Home Loans Inc, and I find the path. Call 843-LOW-RATE.

Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.