Escrow: it’s a term you will likely come across when you are in the process of financing your new home. I think the best metaphor for escrow is the one taken from this article by LendingTree:
“If you’ve ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you’re doing something similar by opening an escrow account.”*
Basically, an escrow closer is a neutral 3rd party that keeps the transaction on-time for closing. The escrow officer may prepare documents, hold and distribute funds and keep the records and deeds that are tied to the transaction. All of these tasks protect the lender from making a bad investment, and the buyer from being taken advantage of.
Escrow is waived in some states, but Indiana is not one of them. So once your mortgage closes, your lender will require you to open an escrow account, and make payments in this account each month. The escrow agent will use these funds to pay off your taxes and insurance premiums when the bills arrive.
If you ever come across a real estate topic that you’d like me to explain further in a blog post, email me and let me know! The real estate business is full of key words and phrases that many people may not fully understand. Of course, that’s why it’s so valuable to have a professional agent on your side to explain the entire process in terms that you understand.