As a homeowner, escrow refers to a financial arrangement where a neutral third party, typically an escrow agent or escrow company, holds funds or documents on behalf of the parties involved in a real estate transaction. Here are 4 things to know about escrow:
1. Purpose of Escrow
The primary purpose of escrow is to protect all parties involved in a real estate transaction by ensuring that funds and documents are handled securely and in accordance with the terms of the agreement.
2. Escrow Account
An escrow account is a separate account held by the escrow agent or a financial institution designated for escrow purposes. Funds deposited into the escrow account are used to cover expenses or payments related to the real estate transaction.
3. Home Purchase Process
In the home purchase process, escrow is commonly used for the earnest money deposit, which is a good-faith deposit made by the buyer to demonstrate their serious intent to purchase the property. The earnest money deposit is held in escrow until closing.
4. Mortgage Escrow
Many homeowners with mortgages have an escrow account set up by their lender. The lender collects additional funds along with the monthly mortgage payment to cover property taxes homeowners insurance and other expenses.
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