You’ve heard the word escrow thrown around in the real estate realm, but do you know its meaning? If you don’t, you’re in good company. Most people, including homebuyers, don’t quite get it.
Escrow is a financial term, and we think it’s critical for our clients to understand where every bit of their money goes when they purchase a home. We’re here today to give you the scoop on escrow, powered by the experts!
What Is Escrow?
Escrow is a third-party account used during (and after) a real estate transaction. It holds money until it is due to the person on the other end of the deal or until certain conditions are met.
Types of Escrow Accounts
Here is a brief description of the two types of escrow accounts out there:
- One type of escrow account is used to facilitate financial transactions between the buyer and seller during the real estate process. For example, if a buyer pays earnest money to indicate that they intend to proceed with the deal, that money is held in an escrow account until the sale is complete.
- After you purchase a home, you might send additional money with your mortgage payment to go into an escrow, or “impound,” account. Your mortgage servicer will use these funds to pay home insurance and property taxes on your behalf.
Escrow Terms Explained
You might hear real estate agents or mortgage professionals throw around a few escrow-related terms. Don’t just nod your head and smile – understand what these terms mean! Here are three popular ones:
- “In escrow”: When money is in escrow, it means that those funds are currently in the escrow account, maintained by a third-party escrow agent, until transaction conditions are met.
- “Close escrow”: Closing escrow means that all transaction conditions were satisfied. The escrow agent will distribute account funds to the appropriate people, and the home in question will officially change hands.
- “Escrow payment”: In many cases, homeowners make an escrow payment with their monthly mortgage payment. This money will go toward home insurance and property taxes when they are due.
Contact Us Today!
Is your escrow understanding still a little shaky? Contact us at MortgageDepot today and let our experienced loan officers answer all your escrow questions!
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