Escrow

Escrow is a financial arrangement where a third party holds money or documents until specific conditions are met. In real estate, escrow serves two main purposes.

During Home Purchase:

• Buyer's earnest money is held in escrow
• Funds are protected until closing conditions are met
• If deal falls through, escrow determines who gets the deposit
• At closing, escrow disburses funds to appropriate parties

  After Purchase (Escrow Account):

Your mortgage lender may require an escrow account for:

• Property taxes
• Homeowner's insurance
• Mortgage insurance (PMI)
• HOA dues (sometimes)

  How Escrow Accounts Work:

1. Lender estimates annual taxes and insurance 2. Divides total by 12 months 3. Adds this amount to your monthly mortgage payment 4. Holds funds in escrow account 5. Pays bills when due

Benefits of Escrow:

• Ensures taxes and insurance are paid
• Spreads large payments over 12 months
• Protects lender's investment
• Removes worry about due dates

  Escrow Analysis:

Lenders review escrow accounts annually and adjust payments if taxes or insurance change. You may receive a refund or owe additional funds.

Escrow Shortages: If your account is short, you can:

• Pay the shortage in full
• Spread it over 12 months
• Increase monthly payments going forward