5 questions and answers about escrow
If you're a first-time homebuyer, this may be the first time you've run into the word "escrow." Here's what it means and how it might affect you as you buy your first home.
What is real estate escrow?
In general, an escrow account is one that's managed by a third party on behalf of others. In real estate, the escrow agent takes care of the money that's involved in the purchase of a home, including any earnest money deposit, the down payment and funds from a mortgage lender.
Why do you need escrow?
The purpose of escrow is to protect both you, the homebuyer, and the seller. You can be confident that your money won't change hands until you actually have legal title to the home. And the seller can be confident that you do indeed have the funds needed for the purchase.
Who serves as an escrow agent?
The escrow agent may be from the real estate closing company or the title company, or may be a real estate attorney. While you can choose your agent, usually your real estate broker or lender will take care of that.
How does the escrow process work?
Through each stage of the purchase process, the escrow agent will verify that conditions are being met. Steps include meeting contingencies in your offer such as an inspection of the home, approval for a mortgage and a title search. Then, at closing, the escrow agent ensures that the title for the home is transferred to you, all closing costs are paid, and the purchase money is transferred to the seller.
Is there a cost for escrow services?
The cost for escrow services is generally about 1% to 2% of the cost of the home.Footnote1 It's included with other closing costs and may be paid by either you or the seller. If you're responsible for the cost, it should be detailed in the Closing Disclosure that's provided to you before you close on your new home.
After closing, a different type of escrow
After you close on your home, in most cases you'll have a mortgage escrow account that'smanaged by your lender. Each month, part of your monthly mortgage payment is put into yourescrow account to be ready to pay property taxes and homeowners insurance. This ensuresthese important expenses are paid while letting you spread the cost over 12 months.
A note from your lending specialist
Buying your first home can be exciting — and challenging. If you'd like to know more about what to expect, contact me or explore the resources on my website.
1 What Is Escrow? How It Keeps Home Buyers and Sellers Safe, Cathie Ericson, Realtor.com, May 21, 2022. Accessed September 2022.
MAP5008270 | 10/2022