Escrow

Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met – such as the fulfillment of a purchase agreement.

 

How Escrow Works

It’s used in real estate transactions to protect both the buyer and the seller during the home buying process. Throughout the term of the mortgage, an escrow account will hold funds for taxes and homeowners insurance.

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What Is An Escrow Account

In real estate, escrow is typically used for two reasons:

• To protect the buyer’s good faith deposit, so the money goes to the right party according to the conditions of the sale.

• To hold a homeowner’s funds for property taxes and homeowners insurance.

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Escrow Accounts For Home Buying

When you’re buying a home, your purchase agreement will usually include a good faith deposit – (also known as earnest money).   If the home purchase is successful, the deposit will be applied to the buyer’s down payment.

 

Escrow Accounts For Taxes And Insurance

After you purchase a home, your mortgage lender will establish an escrow account to pay for your taxes and homeowners insurance. Each month, your mortgage servicer takes a portion of your monthly mortgage payment and holds it in the escrow account until your tax and insurance payments are due.

 

Who Manages An Escrow Account

Escrow accounts may be handled by a variety of third parties, including an escrow company, escrow agent or mortgage servicer. Where you are in the process will determine who manages the account.

 

Escrow Companies And Escrow Agents

When you’re buying a home, escrow may be managed by a mortgage servicing company or agent. The escrow agent or company is sometimes the same as the title company.

 

Mortgage Servicers

Your mortgage servicer manages your mortgage, from closing until you pay off your loan. Mortgage servicers are responsible for collecting your mortgage payment, maintaining the records of payments and managing your escrow account.

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What Escrow Accounts Don’t Cover

Escrow accounts don’t cover all the expenses related to homeownership. Your lender or servicer won’t collect money to pay your utility bills or homeowners association (HOA) fees.