The escrow process usually elicits questions from both buyers and sellers and can feel even more overwhelming for someone who has never bought or sold a home before.
But, we have great news! Armed with a bit of information, the escrow process can feel worlds more manageable, so we are going to take a look at the top five most common escrow questions and their answers.
What Does Being in Escrow Mean?
The simple answer to this question is that “being in escrow” is the timeline of purchasing a home from inception to execution. It starts when you make an offer on a home and provide a cash deposit or earnest money and follows the process through the seller accepting your offer until you close on the property, which is generally at least 30 days.
Your deposit/earnest money is held in an escrow account and doesn’t trade hands until all contingencies have been satisfied, and the sale is finalized with the seller. You will likely be working with an escrow officer, attorney, or title company during the escrow process.
What is an Escrow Account?
Think of an escrow account as a savings account; a savings account that only your loan servicer has access to. Many homeowners set-up long-term escrow accounts during closing to collect and hold monies to pay for monthly property taxes, mortgage insurance, and sometimes homeowners insurance.
It’s a convenient way to put aside money, so you’re not slammed with large bills. Instead, the loan servicer will pay them from the escrow account when they come due.
Is Escrow Something I Set-Up Myself?
In a word, no. Escrow is handled by a title agent, attorney, or escrow company that is getting paid for this very service. Neither buyers or sellers are involved in setting up escrow during the sale or for the escrow account at closing.
How Much Money Can I Expect in My Escrow Account at Closing?
This will be determined by your lender, as they often require buyers to set aside two months of estimated property taxes, mortgage insurance payments, and homeowners insurance payments (if required) as part of the closing costs.
Speak with your lender to determine the exact amount of money that you will need in your escrow account at closing, as some may require you to pay the entire first year of homeowners insurance upfront, and then start making escrow payments for the following year’s bill.
What Should I Do If There Is a Mistake In My Escrow Account?
This is a great question because there is a lot of onus placed on the buyer, even with an escrow account. While your loan servicer is the one responsible for handling your property tax and insurance payments, mistakes are made, and you are the one who will be held liable for the full, on-time payment.
In order to catch any mistakes ahead of time, keep an eye on these things.
- During closing, ensure the correct tax rate is being used to calculate your property taxes. Be on the lookout for any math errors.
- Learn more about how property taxes work in your area. Visit your local government’s website for the assessor’s office information and rates.
- Keep an eye on your tax and insurance bill due dates, even if you aren’t paying them directly. A quick phone call can confirm whether or not they have been made on time.
- Review your mortgage statement to see the balance of your escrow account and how much of your current mortgage payment is being deposited into it. Ensure that you have enough there to cover any bills.
These are just some of the most common escrow questions, but we understand that you may have more. We are here to help in any way that we can, so please reach if we can be of assistance!