"Let's explore how escrow works and why it matters. How does escrow work in real estate? At its core, escrow is a legal arrangement in which a neutral third party holds assets on behalf of other parties who are in the process of completing a transaction. These third parties ensure that both buyer and seller meet the agreed-upon conditions before any money or property changes hands."
"During the purchase phase, escrow serves as a safeguard and holds your earnest money deposit, ensuring that neither party is exposed to undue risk as the transaction progresses. Once the sale is finalized, your mortgage lender will typically set up a separate escrow account, this time to manage future property expenses like taxes and homeowners' insurance. This provides added security and trust for all parties involved."
"Instead of managing these expenses yourself, you'll make one monthly payment to your lender that includes your mortgage plus a prorated share of your estimated taxes and insurance. The lender then pays these bills on your behalf when they're due. How escrow accounts mitigate risk Escrow accounts act as a built-in safety system for both homeowners and lenders, ensuring that essential property expenses are handled automatically and on time."
Escrow is a legal arrangement where a neutral third party holds assets until all transaction conditions are met, protecting both buyer and seller. During a purchase, escrow holds the earnest money deposit to prevent exposure to undue risk while the sale progresses. After closing, lenders typically open escrow accounts to collect prorated taxes and homeowners' insurance as part of the monthly mortgage payment. Lenders then pay those bills when due. Escrow accounts automate critical transactions, reduce human error, ensure timely payments, minimize penalties, and lower financial risk for both homeowners and lenders.
Read at Redfin | Real Estate Tips for Home Buying, Selling & More
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