Escrow is an account used in real estate to handle money in transition. An escrow account is controlled by a third party to disperse funds when terms of a contract are met. Escrow is used during the home closing process and after.
While you are waiting to close on your new home, all moneys (closing costs, home repair money, earnest money) and necessary documents are held by an ‘escrow agent’ until everything on the purchase contract if finalized. During closing the escrow agent (who is often times also the closing attorney) will disperse the funds being held in escrow to their rightful places per the terms of the contract.
After you close on a home, your mortgage lender will probably require an escrow account to be set up for your property taxes & homeowners insurance payments. Your total mortgage payment amount will include the money that gets deposited into the escrow account to cover those payments. The funds are dispersed from escrow by your lender when needed. This method ensures that your payments are made on time and it also benefits you by spreading out tax and insurance expenses into 12 smaller payments. In some circumstances, the required escrow account can be waived by the lender but most of the time it requires putting a down payment of more than 20% of the purchase price.
If you have more questions about escrow contact your Hometown Real Estate Company to guide you. 301.759.0100.