Through the course of any real estate transaction, you’ll hear the term “escrow” quite a bit. But what is escrow, and what do you need to know about it? Here is information to help you understand some of the basics.
The General Definition of Escrow
In simple terms, escrow is a legal arrangement where a third party holds funds or property temporarily until a condition has been met. Escrow is used in real estate transactions to protect both the buyer and seller. But escrow is also used by mortgage companies for you to fill certain monetary obligations of being a homeowner. Different lenders may have varying escrow terms depending on your loan. It’s important to understand these terms, so make sure to discuss them with a professional.
What are your mortgage escrows?
An escrow account can be maintained for both your homeowner’s insurance and property taxes. The account is maintained by your mortgage lender to pay your homeowner’s insurance and property taxes. A certain amount will go into your escrow account when you make your monthly mortgage payment. Then, when your homeowner’s insurance or property tax bill is due, the amount is withdrawn from the escrow account. If you change your home insurance policy, it could increase or decrease the amount of your monthly mortgage payment.
Questions about escrow? Give us a call! We can help you throughout the home buying process.