What Homebuyers Need to Know About Escrow
The word "escrow" is heard a lot by new buyers and that is probably because it has two meanings when it comes to real estate matters. To find out what you need to know about escrow, read on.
When You Are Under Escrow
Don't worry, being under escrow is a good thing. In some locations, you are considered under escrow once you and the seller agree on a price for the home. It's another way of saying "under contract". While this makes for a great time for buyers, it can also be a busy time with lots to do and not much time to do it.
Escrow: The Legal/Financial Meaning
Confusingly enough, escrow also has to do with legal and financial matters and it's not just used when dealing exclusively with real estate matters either. An escrow account at a banking institution holds certain funds in abeyance until they are needed.
As far as real estate matters go, it's very common for buyers to use an escrow account both during and after the closing. Before the closing, the deposit (or earnest money) goes into the escrow account established by the real estate brokerage or the title company. That way, the money is not paid to the agent or the seller who has an interest in the contract. If the deal should fall through, the money is refunded to the buyer under certain circumstances.
The other way that escrow accounts are used is when dealing with things like property taxes and homeowners' insurance. After the closing where new ownership is documented, the owner is provided with escrow paperwork detailing their financial obligation each month. In most cases, property taxes and homeowners' insurance premiums are divided into 12 equal payments. The money is paid along with the mortgage to the lender and the lender holds the escrow account. The buyer is then responsible for keeping up with the payments to the various entities.
Under Escrow Activities: In Real Estate Terms
Sometimes escrow is used to refer to the laundry list of activities during the period between the signing of the contract and the closing. In this way, escrow can involve the following:
- The purchase of homeowners' insurance
- The professional home inspection
- The professional home appraisal
- The repairs and other matters that need to be addressed with the physical plant of the home
- The title searches and title insurance duties to ensure no other rightful owners exist for the property.
To find out more about escrow, talk with your real estate agent.
