Buying a new house can be very exciting and a little daunting. If you’re familiar with the process, buying a new house can be easier and more enjoyable. Understanding Escrow, how it works and why it matters, can bring you peace of mind in this whole process. And who doesn’t want that?
WHAT DOES ESCROW PROVIDE?
Escrow is a legal agreement between you and a third party. Whether it be with a title company when you’re purchasing a property, or an account with your lender for property taxes and insurance, you’re allowing that third party to hold a portion of your money. When working with a Title company, you place a small deposit down, known as Earnest Money. That earnest money will be part of your down payment, and it will be released to the seller or other designated party at closing. You can feel confident your funds are safe and will be handled correctly when you use a trusted title company for your property closing. Another reason escrow is often used is for items such as insurance and property taxes. When you make a mortgage payment with a traditional lender, you'll typically have your homeowners insurance and property taxes included in that payment. That helps the lender feel secure, because those items won't go unpaid. Instead, they'll escrow the money for those items by holding a set amount out of your payment each month. When it’s time for property taxes and your insurance to be paid, those funds will be ready and available.
WHY IS ESCROW IMPORTANT?
The biggest reason that escrow is important is the protection and security everyone receives from using it. As a buyer, you can safely provide earnest money. As a seller, you can feel confident that the money will come to you at closing. As a mortgage company, and a homeowner you can feel secure in knowing that the insurance and taxes on a property are being paid in full, and on time. Working with a quality title company is the best way for everyone involved in the transaction to have peace of mind.
