What is Escrow?

Escrow is a key part of any real estate transaction, although we don't always know what we're getting into when we hear it. What is escrow?

Escrow comes into play to keep both sides of the transaction safe, and protected. When your buying a home, you need to provide an earnest money check. Instead of providing the seller with a check, you will instead let it sit in escrow. That way if anything goes south, your seller can't hold the check over your head as a tool to negotiate. At the same time, a seller won't sign over a deed until you've paid for it. Escrow ensures everyone gets what they are due at essentially the same time.

What is Escrow used for?

An escrow account is setup for you by your lender to cover a few costs. Before signing over a check to escrow, have your CT real estate attorney look over the agreement. When you buy a home your main costs are a principal, interest, taxes, and insurance.

In most cases, when you put down less than 20% on your home purchase, lenders will require you to setup an escrow account (a.k.a impound account). This requires you to pay in monthly installments beyond your mortgage payment to accrue for property tax and insurance payments.

How much money needs to be in Escrow?

Generally lenders require escrow accounts to include two or more months of insurance and property tax funds in them. At your closing, remember to bring your earnest money check to your closing, to cover the funds needed in your escrow account. Remember, these aren't extra costs, it is a prepayment of insurance and property taxes that are already due later on.

Law Office of Chris Albanese
April 24, 2017