Understanding Escrow Accounts
If you’re a first-time homebuyer, there’s a chance you’ve never encountered an “Escrow” account. It’s a weird word, right?
If you’ve ever watched Gilmore Girls, you may remember TJ’s excitement about being “in Escrow.”
Wait… so what exactly is an Escrow Account?
An Escrow Account is created by your mortgage lender.
The Escrow Account will be in existence the entire life of your loan.
Each month, part of your mortgage payment goes into this account.
These funds are held to the side usually for a couple reasons:
- To hold the funds you need to cover your property taxes and homeowners insurance payments.
- To ensure your money goes to the right parties / is protected (aka, helps keep things separate and transparent).
An escrow account functions as an intermediary, safeguarding the interests of both the buyer and the seller. When entering into a transaction, the parties deposit funds or assets into the escrow account, which is controlled by a designated escrow agent. The funds are securely held until all the terms and conditions of the transaction are fulfilled. This process provides assurance and reduces the risk of fraudulent activities or misunderstandings.
How Does an Escrow Account Work? (This is the boring part.)
If you really want to dig a bit deeper, here’s the nitty gritty of how the process actually works.
When a buyer and a seller reach an agreement, they initiate the process by opening an escrow account. The buyer deposits the agreed-upon purchase price into the account, which will be released to the seller once all conditions, such as inspections, title searches, or mortgage approvals, are satisfied.
During this period, the escrow agent acts as a neutral intermediary, ensuring that all parties adhere to the agreed terms and conditions. The agent verifies the completion of necessary steps, such as property inspections, loan approvals, or other contingencies mentioned in the agreement. Once everything is in order, the agent releases the funds to the seller, and the transaction concludes successfully.
Still have some questions?
If you have any questions about Escrow, or really anything in the mortgage world, United Faith Mortgage is more than happy to offer you zero-pressure help. (And we truly mean that!)
We’re a family-run company that has a very important Direct Lender Advantage. That basically means we use our own money and make our own decisions within our own walls. There’s no middle man. For you, this often means a shorter turnaround time and a better rate… which can save you monthly and lifelong money, whether you’re refinancing or buying a new home.