If you’re new to the homebuying process, you may be introduced to a plethora of new terms you’ll need to know. Escrow accounts are no doubt on the list.
Having an escrow account is often required by mortgage lenders, so getting a better understanding of what they are and how they work can help ease you into the process.
So, what exactly is an escrow account, and what is it used for? Escrow accounts are set up during the homebuying process and act as a neutral third party to hold important contracts, earnest money and other important information related to the home sell.
After the purchase of a home, your lender can use your escrow account to manage insurance premiums and property taxes and insurance.
Every year when your tax office issues property tax bills, your lender uses money collected in your escrow account to pay off the taxes. If there isn’t enough money in your escrow account, they’ll reach out to you to make up the difference.
If the amount owed is less than what’s in your escrow account, your lender can credit you for the next tax year.
As standard practice, an escrow account is required if your home down payment is less than 20 percent of the total purchase price.
Some loan types such as FHA loans also require an escrow account. In some cases, you can cancel an existing escrow by providing proof of regular and on time home payments.
Escrow accounts may seem a bit confusing at first, so take your time as you learn more about them and consider speaking with an escrow officer for assistance if need be.
As a Florida native growing up in Sarasota, I am well suited to assist buyers and sellers find the perfect property and location to suit their desired lifestyle. My response time is extremely fast and I can turnaround answers to follow-up questions pretty quickly. I specialize in out of state buyers looking for their piece of paradise along the Gulf Coast and make it a priority to keep them up to date on our quickly changing local real estate market.
