Buying a home is one of the largest financial choices you will make in your life. It comes with terminology you may not otherwise come across in your everyday life. One of these terms is “escrow.” In case you aren’t sure what escrow is or how it will affect your home buying process, check out the details below.
Escrow is the neutral third party that holds money and/or documents until the escrow instructions are fulfilled by both sides. The buyer puts up the money but the seller won’t get any until certain conditions are met. Escrow is not strictly related to home buying, but most people deal with the term when buying a home.
Escrow protects the buyer, seller and lender from risk during a real estate transaction. It confirms the buyer has the money needed, gives time for the seller to meet requirements and shows all other involved parties that the sale is becoming final.
Before you buy your home, you must pay closing costs. These are various fees and charges that must be paid before the keys are handed over, making it official. Some of the costs, like escrow, are not written in stone. There are many variables that can affect the overall price of your home and what fees you incur. The buyer often must put a certain number of months’ worth of homeowner’s insurance and property tax payments in escrow.