What is escrow?

[renegade28x]

Wikipedia Says... "Escrow is best known in the United States in the context of real estate(specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage)."

Im 18 and have never had to buy a house so i dont know what people are talking about when their loan for a building or a house or anything is "almost through escrow".

I figured Id ask my fellow CB7Tuners

Anyone got a simple way of explaining this?

thanks guys

[King James]

Financial Dictionary

Escrow definition

A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.

As per dictionary.com

Edit for example:
An escrow account can be used in the sale of a house, for example. If there are conditions to the sale, such as the passing of an inspection, the buyer and seller may agree to use escrow. In this case, the buyer of the property will deposit the payment amount for the house in an escrow account held by a third party. This assures the seller - in the process of allowing the house to be inspected - that the buyer is capable of making payment. Once all of the conditions to the sale are satisfied, the escrow transfers the payment to the seller, and title is transferred to the buyer.

[renegade28x]

ooohhhhhh got it!!!

so depending on why youre using escrow or how big of a purchase depends on how long it will take?

can you take your money out of escrow and back down or is there an obligation? and im assuming the use of escrow costs money?

[ChIoVnIdCa]

(specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage)."

Say you have 10k in property taxes a year. Say your town collects once a year or once a quarter you can either come up with 10k at once or set up an escrow and the company will pay the town with money they collected from you throughout the year...

Same with insurance.... Say your insurance is 4k a year

So a total of 14k is $1166 you will have to come up with for each month forgetting about the mortgage itself..

Alot of times the mortgage company will force you to set up the escrow and in my case it cost nothing... It is not a loan... You pay it every month and you pay for the month ahead... So they make money because they hold your money for the year or quarter and collect interest / invest it till it is due...

[lil_dcb7]

so, its like a huge down payment?

[ChIoVnIdCa]

so, its like a huge down payment?

Not the type of escrow I am talking about.

Another form is... Say you are going to buy a home cash from the seller... But it needs work (like make 20k of improvements to the heating system) ... If the deal is that the previous owner has to fix the system.......... then the buyer can pay the complete value to a third party ... They will hold the money until the original owner makes the repairs then payout. That way the buyer doesn't have to worry about getting screwed and the seller doesn't have to worry about the buyer flaking...

[Leung]

Not the type of escrow I am talking about.

Another form is... Say you are going to buy a home cash from the seller... But it needs work (like make 20k of improvements to the heating system) ... If the deal is that the previous owner has to fix the system.......... then the buyer can pay the complete value to a third party ... They will hold the money until the original owner makes the repairs then payout. That way the buyer doesn't have to worry about getting screwed and the seller doesn't have to worry about the buyer flaking...

so in a way it's like paypal?

[deevergote]

so in a way it's like paypal?

That's actually a fairly good way to describe it...

The buyer pays a 3rd party, who holds the money until it is necessary to pay the person or company that is getting paid.


For example... I pay into an escrow account every month with my mortgage payment. When the time comes for property taxes, the city doesn't bill me directly... they go to my mortgage company, who pays the taxes for me. I have never directly paid a property tax myself. This keeps things organized.

[Rusty]

ooohhhhhh got it!!!

so depending on why youre using escrow or how big of a purchase depends on how long it will take?

can you take your money out of escrow and back down or is there an obligation? and im assuming the use of escrow costs money?

Escrow doesn't take a certain amount of time. It's all very contractual so if you as a seller put money into an escrow account for a buyer the buyer is (usually) the only one that can take money out and usually it can only be used for the contracted reasons.

You don't put money in escrow just for safe keeping and I'm not aware of any sort of escrow accounts that you can "borrow against." The money is kept by an unbiased 3rd party in order to protect the two contracting parties.

Is there a reason you're asking about this? If so we might be able to help you more.