What’s An Escrow Account?
If you’re a homeowner or house-hunter, you’ve probably heard the term “escrow account.” It’s a tricky term to understand, but it’s important to the home buying process and your monthly payments.
You deserve to know where your money is going, so let’s walk through what escrow accounts are and what they do.
What’s An Escrow Account?
An escrow account is a special bank account set up to hold your earnest money during the homebuying process. After you buy a home, escrow pays your property taxes and homeowner’s insurance.
Escrow During the Home buying Process
During the home buying process, you pay an “earnest fee” to the escrow account. This fee shows the seller you want to close the deal.
If you change your mind late in the home buying process, the seller could withdraw the earnest fee from the escrow account. If you close the deal, the earnest fee goes toward your down payment.
Escrow After Buying a Home
After closing on your home, your monthly mortgage payment includes your mortgage and deposits to your escrow account to pay your property taxes and homeowner’s insurance. Since taxes and insurance costs change year-to-year, your monthly mortgage payment could also change. The amount you pay toward your loan does not change. If your payment does change, it’s the escrow portion making that happen.
This could work out two ways:
- The escrow account underpays taxes and insurance, which means next year’s monthly payment increases to cover the gap.
- The escrow account overpays taxes and insurance, which means you get a refund or lower payments next year.
We hope this helps our members understand escrow accounts a bit better. If you have more questions, we’re always here to walk you through the home buying process. Our experience, combined with our competitive rates, can put you in a home as soon as possible.
