People buying or selling a home sometimes don’t understand “escrow” or how it works. To help you acquire a house, you need an escrow company on board. This is even necessary because a third party holds documents and cash in trust for buyers and sellers of real estate. So, an escrow corporation or legal firm may serve as a third-party escrow agent, keeping the papers and payments in what is called an escrow account.
Read on to learn more about an escrow account in real estate.
WHY DO PEOPLE USE ESCROW IN THE SALE OF A HOUSE?
Generally, a down payment in earnest money is essential at contract signing. With this money from your down payment, you’re showing the seller you’re serious about purchasing their property. Escrow is an impartial and trustworthy third party that manages the money until it’s time to close on your house, protecting both parties.
WHY IS IT NECESSARY FOR BOTH PARTIES TO BE SAFEGUARDED?
When a buyer makes an offer, the seller removes the property from the market and closes the deal. The seller may retain the earnest money if the buyer backs out. As long as the seller fulfils their contractual obligations or cannot deliver the house as promised, the buyer’s earnest money will be refunded, freeing them from the contract. Thus, the escrow officer or escrow agent carries out these signed agreements and transfers the funds to the legitimate party.
HOW IS ESCROW SETUP?
This account is also usually used to keep the money for the down payment and closing costs, seller credits back, and any other money that is part of the deal. The earnest money is usually kept in this account, too.
However, the escrow holder will disburse all money following the closing on the real estate lease and mortgage deal terms. Although, there are several fees that you’ll have to pay when you buy a home:
- Real estate agent commissions.
- The cost of your mortgage loan.
- Additional closing expenses in your final closing disclosure.
The escrow agent meticulously adheres to the terms of the real estate contract and the written instructions provided by your lender to ensure that all monies are sent where they are supposed to be delivered.
WHAT ARE THE BENEFITS OF AN ESCROW ACCOUNT?
Escrow accounts have some advantages for both buyers and sellers.
One benefit of giving instructions and money to a third party while still under contract is that it provides buyers and sellers peace of mind, knowing that both parties will follow the contract’s terms.
As a second benefit, real estate escrows guarantee that the buyer, seller, and lender will not lose any money if the agreement fails to go through. The money is safe and will be returned to the rightful owner at the end of the day.
Also, you may rest easy knowing that your property taxes and insurance are in good care of an escrow account.
The last benefit is that the mortgage escrow account allows you to go through the procedure with minimal worry. Predictable monthly payments make budgeting easier and eliminate the need to keep track of tax and insurance deadlines.
The purchase of a house is one of the most significant financial decisions you will ever make. There have been a slew of safeguards over the last century in the United States regarding purchasing and selling real estate, and to ensure everyone’s safety, an escrow account is essential.