Regardless of whether you’re buying a home or not, the chances are you’ve heard the term “escrow”. The question for many is, what the heck is escrow? Don’t worry, we’ve got you covered! We’ll walk you through what escrow is, how it works, and why it’s important for you.
What is escrow?
Escrow is essentially a legal arrangement where a third party holds your money or property in a separate escrow account until the terms of your agreement have been fulfilled. That’s all it is. It’s a process that ensures your money or property goes to the right person, at the right time based on the agreement you’ve made.
How escrow is used in real estate
When it comes to real estate, there are two different types of escrow accounts that serve two main purposes.
Protect the buyer
By placing the buyer’s funds in an escrow account, the buyer has the comfort of knowing that if the agreement falls apart or if the conditions aren’t met for any reason, their funds will be returned to them because they’re in the hands of a third party. This is generally a short term escrow account.
Post Sale Taxes & Insurance
After the closing, your lender will open a separate escrow account. This account will be used to hold and pay your taxes and insurance and will be open for the life of your loan.
The bottom line on escrow
Escrow protects both buyers and sellers during the home buying process and is an important part of the process. It gives both parties peace of mind and allows you to enter into an arrangement with good faith knowing that you are covered by your escrow account. Post sale escrow makes paying your taxes and insurance convenient and relatively effortless. So the bottom line is escrow is for your benefit and protects you throughout the process.