What Is Escrow?


Escrow can be a confusing term for first-time home buyers because the word escrow has a couple of different meanings in Real Estate. Escrow is defined as a deed, bond, or document held by a third-party.


The first type of escrow you might hear about occurs during the purchase process when a seller accepts your offer and you are under contract to buy a house. An Escrow Agent, a third-party to your property transaction, holds your deposit and processes documents during the purchase transaction until it’s time to close on your new house. When a third-party processes and keeps the documents, this keeps them from influence by one or the other party during the transaction. When you arrive at the closing table to buy your new home (or before), the Escrow Agent transfers the documents to the Attorneys and Real Estate Agents who act on your behalf during the property transaction. Once the documents are transferred, each party at the closing has a part to play in the transaction and is responsible to sign their section of your purchase contract to ensure a smooth property transfer. After the contracts are processed, the Escrow Agent also releases the funds to the seller and it’s at this point that the home becomes yours.


The second type of escrow that you might encounter when purchasing a home occurs with your bank or mortgage company. In this type of escrow, you’ll prepay your property taxes and homeowners insurance every month with your mortgage and the bank or mortgage lender will then pay the taxes and insurance on your behalf. Depending on your deposit amount and percentage, you may be required to escrow your property taxes and homeowners insurance. You can also choose to escrow your taxes and insurance for budgeting purposes. Either way, if a portion of your monthly mortgage payment goes toward an escrow account, your bank or mortgage lender will include this information and the balance in your escrow account on your monthly mortgage statement. 


Hopefully, this information helps you understand one more part of the home-buying process. If you have questions about buying your own first home, reach out! We’d love to help you find the right house for your family.



Enjoy the Adventure!