There are essentially two types of in escrow.

To manage and disburse funds until all conditions are met, and escrow is closed.

What is escrow?

The seller might require that you pay earnest cash when you make an offer on the home. This money will be kept in an escrow account while you and the seller negotiate the contract. The seller has additional assurance that you will not withdraw from the deal and that they are protected in case you do. This earnest money also encourages sellers to choose your offer over other offers. The escrow agent will manage the transfer of property and the exchange of money. This eliminates any uncertainty about whether one party can fulfill its obligations and helps to ensure that neither side is favored.

What does it mean to be in escrow?

The phrase "in-escrow" refers to all items that have been placed in an escrow account, such as earnest money, property, or loan funds. They are kept with an escrow agent until all terms of the arrangement are met. The conditions typically include an appraisal, title search, and approval financing. The earnest money remains in escrow, and you cannot touch it. After all conditions have been met, earnest money can be used to pay the purchase price or the down payment for the home.

What does it mean when you close escrow?

Closing escrow is when all conditions of the escrow agreement have been fulfilled. The title has legally passed to you after the seller has approved a loan for your home. A closing agent or closing escrow agent, who may be an attorney depending on where the property is located, will distribute transaction funds to the relevant parties, sign all documents, and prepare a new deed that names you the homeowner. The deed will be sent to the county recorder by the escrow officer. This will ensure that escrow has been officially closed. After closing, both you and the seller will be sent a final closing statement along with other documents. If you find an error in the statement, please review it carefully and immediately contact the closing agent. Keep the statement along with all your important papers. You will need it to file your next income taxes return.

What is an escrow?

After purchasing a home, you will be responsible for maintaining property insurance and paying local and state property taxes. You owe the property tax and insurance premiums. These are the escrow payments you make to you impound or escrow account. The impound account guarantees that taxes and insurance funds are available, and that premiums are paid on-time. Your lender won't allow you to skip a tax payment, which could lead to a foreclosure of your home. Your lender won't let you miss your homeowner’s insurance payment. They may have to purchase additional insurance for your home to protect it in the event of severe or property loss.

How do monthly escrow payments work?

The monthly escrow payment to the impound account will be based on your annual property tax and insurance obligations. This may change throughout the term of your loan. Your mortgage servicer might collect a monthly payment along with your principal, interest and use the collected funds to pay taxes or insurance on your behalf. If the amount changes, your lender will inform you at least 30 days prior to your next payment. Your mortgage servicer can walk you through the local impound fund funding schedule for your loan. Your monthly mortgage payment could increase if there is not enough money in your impound account to pay the taxes or insurance. However, your principal and interest rates will remain the same for fixed-rate loans.

Initial escrow payment due at closing

Lenders typically require that the impound account has at least two months’ worth of insurance or property tax funds before closing. Your location will determine how much you need to prepay into an impounded account. These funds don't incur additional closing costs. Instead, these funds are prepaying additional months of home insurance or property tax bills which you will be required to pay. The initial escrow payment amount due to your home mortgage servicer at closing will be listed on your loan estimate.

Do I need an escrow account?

Lenders who originate VA, FHA or conventional loans generally require an escrow account to pay homeowners insurance and property tax. Lenders may permit homeowners to pay their property tax and home insurance in a lump sum, rather than setting up an account. Some lenders may charge a fee or a higher interest rate if you waive escrow. Although you are not required to open an escrow account you can still choose to do so to help you break up your property and insurance payments, keep track and avoid unexpected bills at the end.