The Importance Of Escrow Accounts

The Importance Of Escrow Accounts

Escrow is a legal arrangement between a buyer and seller. This legal arrangement is formed to ensure that a certain agreement on the purchase of a property is fulfilled. However, neither the seller nor the buyer hold on to this agreement but a third party of their choosing. Furthermore escrow is used to protect the “earnest money” paid by the buyer. In this article, we will be explaining the importance of escrow accounts.

Protect The Buyer’s “Earnest Money”

“Earnest money” is a deposit that an individual makes to the seller, to show that they are serious about purchasing a property. However, this is a good faith deposit and is not allowed you to be used by the seller, until the transaction is complete. Therefore, an escrow account is used to save this money, until the buyer provides the outstanding balance for the property. Once the buyer has paid the outstanding balance, the “earnest money” will then be considered as a down payment.

Taxes and Insurance

Secondly, mortgage lenders use these accounts to pay for your taxes and insurance. Once all fees have been settled with your mortgage lender, they will take a share of your monthly mortgage payment and put it in an escrow account. However, they only do this to assist you with tax and insurance payments once they are due. Furthermore, because they will be covering your taxes and insurance temporarily. Most lenders will require that there is at least 2 or 3 months worth of mortgage payments available in your account. Moreover, they will analyze your account frequently to ensure they are collecting the right amount.

 

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