What is Escrow?
You've probably heard the word "escrow" used in a couple of different ways when it comes to real estate. Typically, you'll hear reference to an "escrow account" when dealing with a lender and your mortgage. You will also hear reference to being "in escrow" when buying or selling a home.
Both of these situations have the same meaning, they're just different applications. Escrow refers to temporarily asking a 3rd party to hold something of value.
In the case of your mortgage payment, the lender estimates your taxes and insurance for the year and you pay an extra amount each month, above and beyond principal and interest, to be put into an escrow account that they manage. You will prepay your taxes and insurance at closing, as well. When the taxes and insurance are due each year they pay it from your escrow account.
You can tell your lender you don't want an escrow account, but you will need to show you have enough money in the bank and probably put a significant down payment on the home you're purchasing.
Deed in escrow
During a real estate transaction, escrow refers to the deed being held by a third party. An agreement has been made to purchase a home and the escrow agency (may also be called the closing or title agency) is temporarily holding the deed while the contract is executed and until payment is delivered on the closing date.
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