What is Escrow?
When you're closing on your new house, a neutral, third party (known as the escrow holder or the escrow agent) is used to assure the process will close appropriately and in a specific time frame. A property is said to be in escrow when in the closing process, payment is held by a third party on behalf of two parties (in this case, a buyer and a seller) when the transaction is taking place. An everyday way to think of what an escrow company does is to think of how you might use PayPal for online purchases.
The escrow holder makes sure that the terms and conditions of the agreement between the seller and buyer are met prior to the sale being finalized.
The certificates the escrow company may collect include:
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
Upon finishing of all portions of the escrow, closing can take place. At this time, all payments and fees for inspections, title insurance and real estate commissions are collected. You'll then get the title to the house and the title insurance gets dispersed as stated in the escrow instructions.
At the close of escrow, payment of funds shall be made in an acceptable form to the escrow. You'll know when it's time to submit the form of payment.
Mortgage Escrow Account
A Mortgage Escrow Account is established to pay on-going expenses while there is a loan on the house. Escrow Accounts are contributed to monthly by the home buyer (who is now the homeowner), but there is also a lump sum that goes into the account at closing.
This is a quick run-down of the escrow process. Your specific plan will be unique depending on your lender and your escrow holder.