August 15th, 2019 8:18 AM by Jackie A. Graves
is escrow? In real estate, an escrow account is a secure holding
area where important items (e.g., the earnest money check
and contracts) are kept safe by an escrow company until the deal is closed and
the house officially changes hands. Escrow is also a contractual arrangement in
which a third party—usually the escrow officer—maintains money and documents
until the deal is done and escrow is closed.
agent is a third party—perhaps someone from the real estate closing company,
an attorney, or a title company agent (customs vary by state), says Andy Prasky, a real estate professional with
Re/Max Advantage Plus in Twin Cities.
party is there to make sure everything during the transaction proceeds
smoothly, including the transfers of money and documents, and to hold assets
safely in an escrow account until disbursement.
protects all of the relevant parties in a real estate transaction, including
the seller, the home buyer, and the lender, by ensuring that no escrow funds
from your lender and other property change hands until all of the conditions in
the agreement have been met. Along the way, proper documentation is filed with
the escrow agent or the escrow company as each step toward closing is
that might be part of the process could include home inspection, repairs,
mortgage approval, and other tasks that need to be accomplished by the buyer or
seller. And every time one of those steps is completed, the buyer or seller
signs off with a contingency release form; then the transaction moves to the
next step (and one step closer to closing).
conditions are met and the transaction is finalized, the closing costs are paid
and the money due to the sellers is disbursed from your lender. Meanwhile an
escrow officer clears (or records) the title, which means the buyer officially
owns the home.
varies—as well as whether the buyer or the seller (or both) pays—with the fee
for this real estate service typically totaling about 1% to 2% of the cost of
money—also known as an escrow deposit—is a dollar amount buyers put into
an escrow account after a seller accepts their offer. The escrow company holds
the money in an escrow account for the duration of the transaction.
to think of it is as a "good-faith” deposit into an escrow account, which
will compensate the seller if the buyer breaches the contract and fails to
buyers come up with cash for escrow and deposit it into the escrow account from
their own funds. The payment amount is small compared with the cost of the home
and the loan, and the home buyers may not even have a mortgage lender yet when
they make an offer on a home.
earnest money can be borrowed from your lender, but there are certain rules
involved. First-time buyers are most likely to need to go to their mortgage lender
to make this escrow account deposit. Your lender will ultimately count the
deposit toward closing costs and the down payment on the house.
seem like a pain, but here's how it can work in your favor. Let's say, for
example, the buyer had a home inspection contingency and discovered that
the roof needed repairs. The seller agrees to fix the roof. However,
during the buyer's final walk-through, she finds that the roof hasn’t been
repaired as expected. In this case, the seller won’t see a dime of the buyer’s
money until the roof is fixed. Talk about a nice safeguard!
benefit from escrow, too: Let's say the buyers get cold feet at
the last minute and bail on the transaction. This may be disappointing to
the seller, but at the very least, buyers have typically ponied up a
sizable chunk of change for their earnest money
deposit. This money, often totaling 1% to 2% of the purchase price
of a home, has been held in escrow. When buyers back out with no legitimate
reason, they forfeit that money to the seller—a decent consolation for the
sale's failure and the expense of making mortgage payments and other expenses
while the home was off the market.
other words, is the equivalent of bumpers on cars, keeping everyone safe as
they move forward in a real estate transaction. Odds are, no one's trying to
swindle anyone. But isn't it nice to know that if something does go wrong,
escrow is there to cushion the blow?
homeowner makes monthly payments to the mortgage servicer, part of each payment
goes toward the mortgage and part of it goes into an escrow account for payment
of property taxes and insurance premiums such as homeowners insurance or
mortgage insurance. When those bills are due, the escrow service uses the funds
in the escrow account to make payment to your insurance company and to the
county for property taxes.
If more money
accumulates in your escrow account from monthly payments than is necessary to
pay property taxes and insurance, the mortgage company sends you a refund
check, and may lower your monthly mortgage payment. On the other hand, if
insurance premiums and property tax expenses go up, your mortgage holder may
send you a bill for the difference, or raise your monthly loan payments.
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