When you buy a home, or just make an offer, you will encounter the term "escrow account." Like making a friendly bet and asking a third party to hold the wager money, the "escrow agent" is the neutral party that holds funds in the interest of the mortgage lender and the borrower.
When the terms of the purchase and loan agreements have been met, the money is released. When your application is approved and the loan takes effect, the lender will likely require money for property taxes and homeowner's insurance also to be held in escrow. These funds are added to your monthly mortgage payment and disbursed when the tax and insurance bills are due.
This protects the lender by ensuring a lien isn't placed against your property for non-payment of taxes, and your home (their collateral) is protected against catastrophe. But escrow also benefits borrowers by spreading the large annual payments for taxes and insurance over twelve months.
For example, if your taxes are $1,600 per year and your insurance is $800, you're budgeting a reasonable $200 per month instead of making two big payments. Escrow accounts do not earn interest, so if you make a large enough down payment, you may be able to avoid the monthly escrow and pay the bills directly. Ask your agent and your lender about the pros and cons.
Richard Weisser Realty - Newnan, GA
Richard Weisser Retired Real Estate Professional
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent
Gabe, This is a simple, easy-to-understand explanation of escrow. Thank you for that!
May 20, 2010 01:49 PM
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate
Thanks Richard and Wanda. Escrows are an often misunderstood facet of the closing process.
May 21, 2010 12:21 AM
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate
Hi Richard, thanks for taking the time to comment it is always appreciated.
Feb 14, 2018 05:51 AM
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate
Hi Wanda, thanks for taking the time to comment it is always appreciated.
Feb 14, 2018 05:51 AM
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