Escrow is a common term in real estate, but it’s often misunderstood. The word itself means “to hold,” and it refers to a third party holding funds for the benefit of others.
As it relates to home ownership, the term “escrow” is most commonly associated with these two instances
- In the home buying process, earnest money deposits are held “in escrow” by either a real estate agency or a title company.
- In the home owning process, home owners can choose to have their mortgage company (lender) “escrow” their home owners insurance and property tax payments as a useful budgeting device (rather than having to pay them in one lump sum).
Home Buying Process: An Earnest Money Deposit is an amount of money the buyer of a home puts down to show the seller he or she is serious about buying the house.
An earnest money deposit is an amount of money the buyer of a home puts down to show the seller he or she is serious about buying the house. It’s not a down payment, although it may be used as one; it’s not a deposit on your house either, although again, it can be used as one. It’s just an earnest money deposit—the amount put down by someone who wants to buy your house and you get to keep it until closing.
If you’re selling your home, this means that if your buyer backs out at any point during escrow (the process between when both parties agree on terms and close) without good cause (like losing their job), you’ll get this amount back from them because they broke their promise. If they decide they want out after everything has been finalized but before closing day, there are specific laws governing how much time must pass before you can request return of these funds from them or whether or not those funds are yours immediately upon cancellation—so make sure you’re working with an agent who can help access an experienced real estate attorney if anything similar happens! (click here to learn more about Earnest Money Deposits)
Home Owning Process: A mortgage escrow account is set up by the lender holding the note on a home.
Home owners can decide to have their home owner’s insurance and property taxes “escrowed” by the lender holding the note on a home. The lender establishes an escrow account for monthly mortgage payments. The lender deposits each month’s payment into this account and then uses it to pay property taxes and homeowner’s insurance on behalf of the borrower. It’s not required that you “escrow” your property tax payments and home owner’s insurance, but it is a useful budgeting tool.
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