What is Escrow? Main Treasure Valley Life

What is escrow? What does escrow do? Escrow serves an important purpose to ensure your money stays safe and your transaction is secure. Read on to find out how.

For many first-time homebuyers, one of the biggest challenges is navigating the paperwork and all of the terminology and lingo that goes with it. Many terms get thrown around by real estate and banking professionals without a second thought. This puts the pressure on you to learn what these terms are. The better informed you are, the more confidence you will have in the homebuying process. One of the biggest questions is: What is escrow?

Escrow has uses in banking, law, intellectual property, and real estate. Overall, escrow is when a third party takes hold of an asset until a contract between two parties (usually a payer and payee) is fulfilled. When the contract is fulfilled, the asset is then given to the payee on behalf of the paying party. In real estate, escrow works in three different areas, but functions the same way.

Escrow and making an offer

A homebuyer looks at a house, likes it, and makes an offer to the seller. The homebuyer and the seller agree to the terms of the offer. The next step is to draw up a contract to finalize the deal. The home buyer submits payment for the house to an escrow company to hold onto until the contract is completed and signed by both the buyer and seller. After the contract is completed—indicating both parties are satisfied and have received what they wanted—the escrow company then submits the payment to the seller to fully complete the transaction.

Escrows and lending

When you are talking to a mortgage lender escrow will come up as well. Escrow payments to your lender have to do with payment on top of the principal and interest on the loan. These payments are for property taxes and homeowners insurance. Mortgage lenders have a vested interest in making sure your loan is paid, so they take the extra payment and distribute it to the proper entities. Just like when making an offer, lenders take the payment, hold and authorize it, and distribute it safely to the proper party.

Escrows and closing

When you are nearing the end of paying off your mortgage (Congratulations!), you will hear about “closing of escrow”. When the escrow is closed, this means all conditions of paying back the mortgage or loan have been completed and the escrow needs to be resolved. This means that an escrow officer will come in to oversee the final payments, record the closing, and file the paperwork correctly. After this, enjoy no longer having a house payment!

If you want more detailed information about escrow works, contact a lending professional to answer your questions.

Looking to buy or sell a home? Look at Full Sail Real Estate and Build Idaho for all of the information you will need to be informed and get started on your journey.

Posted by AndrewS at 8/21/2019 3:05:00 PM
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