If you are a first time home buyer and just beginning your research on mortgages, you may not be familiar with what escrow is. Although, let’s be real, you may have a mortgage now and not completely understand what escrow is. Am I right?
Going the definition route, escrow is when you put something of value in the care of a third party who is neutral. The valued item is there until certain conditions are met. In regards to real estate and mortgages, it makes transactions safe for all parties involved. An escrow company holds on to all funds involved until the final transaction comes to be. This process makes the real estate transaction safe for all parties involved.
Another escrow account that comes to be is ongoing escrow. The company you hold your mortgage with is who manages this escrow. This escrow helps with property tax and insurance bills that come up. The escrow company distributes funds as needed to the appropriate parties – like your local tax authority or homeowners insurance premiums. The funds that go into this account may also be called “impounds.” Keep in mind that this will increase your closing costs since the escrow company will make sure the first six months are taken care of.
Escrow companies can also order home inspections, surveys, title searches, etc. As you can see, they deal with more than just money. They certainly wear many hats! The costs of their services can vary. They tend to vary depending what states you are in. Ultimately, they are an important part of homeownership.