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What is Escrow?

If you start talking about real estate or purchasing a home, sooner or later, you’ll hear the term “escrow.” What is escrow? It is a contractual agreement that assigns a third-party to receive and distribute funds according to the contract. In real estate, it means your house, or your money, is in a kind of limbo and about to trade hands legally.

Offers and Escrow

If you’re in the market for a new home, you’re going to need escrow. When you make an offer on a home you like, you will write an earnest money check that will be placed in “escrow” with an escrow company. That means the funds aren’t given directly to the seller. Instead, they are held by an impartial third party until you and the seller finalize negotiations, complete a contract, and close the deal.

Escrow is crucial because it protects both parties to the sale. Say you put down earnest money that went directly to the seller and then lost your job and couldn’t qualify for a home loan. With escrow, you could more easily get your earnest money back as long as it’s according to the terms of the agreement. There is no risk of someone unlawfully taking your money. Also, the seller won’t want to sign over the deed to the house until you’ve paid for it, and you won’t want to hand over the funds without the deed being signed and released. Escrow ensures everyone gets what they are due at virtually the same time and according to the instructions of both parties.

Lenders and Escrow

Escrow can also handle the payments associated with a home loan that don’t include principal and interest. Escrow funds are funds held by the lender and used to make payments for your homeowner’s insurance and property taxes. When they are due, lenders collect the money monthly along with your loan payment and pay the taxes and insurance when due.

Escrow and Closing

You might also hear the term “closing of escrow.” Closing is when your purchase is completed. A closing officer or “escrow officer” oversees the final paperwork and manages the exchange of funds and the deed recording. This person also ensures that all money is properly disbursed, that the documents are signed and recorded, and all necessary conditions are met.
Once escrow is closed, and all funds are fully disbursed, all parties to the contract receive a final closing statement and other documents in the mail. You should always check the statement carefully and call the closing agent immediately if you notice an error. File the documents with your most important papers because you’ll need it when you file your next income tax return.
If you still have questions about escrow or need to open an escrow account, contact Primary Residential Mortgage. We offer complete escrow services with every loan we provide and are happy to be of service.


Note: Opinions expressed are solely my own and do not represent the views of my employer