All About Escrow

How Escrow Helps Home Buyers—And When It Hurts

Image of paper currency, money, laying on a table with some in an envelope. Captioned: How Escrow Helps Home Buyers—And When It Hurts

Through an escrow arrangement, a neutral go-between holds onto documents or collateral while a transaction is underway. Escrow providers usually charge the parties a fee to accept and hold the assets, redistribute the funds pursuant to the parties’ agreement, and ultimately close the escrow account.

When you’re buying a home, there are two main types of escrow accounts to expect:

  • An escrow account for the home purchase. The escrow arrangement sees to it that everyone performs as promised in the purchase agreement, and that each side’s value is protected until the parties come through on their commitments to each other.
  • An escrow account for your mortgage company. This is the common way of distributing a home buyer’s payments for homeowner’s insurance and taxes. The lender can be sure, this way, that timely payments keep your house insured, and the title clear of tax debt.

Here, we look at both kinds of escrow — the account used until you close on your home, and the account used after closing, complementing your monthly mortgage payments with insurance and tax payments.

We’ll also review the case against the second kind of escrow.

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