When you buy a house, you are bound to come across the term “escrow” at some point in the process. In the real estate arena, escrow could actually mean one of two different things, depending on the situation. Understanding how escrow works is essential if you want to make sure that the real estate deal is being handled appropriately. What is Escrow? It is basically a third party that handles things on your behalf when working with a third-party. They are there to ensure the integrity of transactions and to make sure that everyone is taken care of as they should be.
Home Escrow 101
So how does escrow work? One situation in which you may encounter escrow is when you are purchasing a house. When this occurs, an escrow agent may assist with the closing. The escrow agent works as a neutral third party that acts as a “go between” for the buyer and the seller. When you make a deposit on the purchase of the house, the escrow agent will hold onto it. Then if the transaction goes through, the deposit will be applied to the purchase of the home. If the transaction falls through, the deposit can be refunded to the buyer. During the process of buying a house, large amounts of money have to change hands. The title to the property also has to be transferred to the new owner. The escrow agent works with the buyer and seller to make sure that the money and title to the property are transferred at the appropriate times. This ensures that everyone is taken care of and is happy throughout the deal.
Escrow With Mortgage Company
Another type of escrow that you may come across is in regards to paying your mortgage payment. When you take out a new mortgage, your lender may require you to use escrow to handle the other costs that come with your home. The mortgage lender may set up an escrow account to handle your property taxes and homeowner’s insurance premiums. You will pay the mortgage lender a certain amount of money every month, which includes the principal, interest, taxes and insurance payment. When the property taxes for your home are due, the escrow company will send payment to your local government from the extra money that you have paid into the escrow account. Your homeowners insurance company will also bill the escrow company at the appropriate time. Then the escrow company will pay your homeowners insurance premiums for you every year.