What it means to be in “Escrow”

If you are new to buying real estate, you may wonder what it means exactly to be “in escrow.” Is it a place? A condition of the contract? A life-threatening disease? The answer is much more straightforward than you may think.

When you make an offer on the house, you propose terms to the seller. You will pay a certain amount of money by a specific date, sometimes with additional conditions like fixing broken things. Many times you will be expected to pay an earnest money deposit, which will eventually go towards your down payment. This amount is negotiable but acts as security for the seller to show that you are a serious buyer. If you weren’t willing to tie up any of your own money, nothing would prevent you from making many offers and letting them all fall through.

But you don’t want to write a check to the seller without getting a house for it, right? This is where escrow comes in. Escrow means that any money you have set aside for the purchase is held by a third-party, often the title company, until the purchase is completed. By holding your funds in escrow, it ensures that the seller gets paid and you get the deed to the home simultaneously. The time that you are “in escrow” can vary but is generally a few weeks as the details of the purchase are completed.

Your lender will also use the term escrow to refer to the amount of money that they hold to pay your taxes and insurance on your behalf. This is a typical set-up when getting a mortgage on a home. If they do not need all of the money set aside for the year, you may even get a check from them at the end of the year.

Never hesitate to reach out to me with any mortgage or real estate related questions! I’m happy to help!