Mortgage Term 'Escrow Deposit': What It Means And Where It Applies

Escrow is one word that you'll probably encounter many times during your home buying process. Several escrow types will come up during this time and you may get confused as to where your money will be placed if  you use an escrow account. Here is a very quick summary of how escrow works and how it is applied to your home purchase transaction.

Escrow Deposit

After the offer has been accepted by both parties, an escrow deposit is a requirement and shall be given to the title company. This is typically in the form of a check and the title agent will keep the fund in an account that is non-interest bearing. This amount will then be applied to your closing down payment and this will serve as a good faith of the buyer's interest to proceed with the transaction. In case you as a buyer decides to back out after the option period, the escrow deposit may go to the seller and not be returned to you.

Tax And Insurance Escrow

This may be optional, depending on your lender. But this kind of escrow account will ensure the payment of your property taxes and homeowners' insurance. A specified amount of money will be required from you to establish a closing balance. Furthermore, a part of you monthly payments will also go to taxes and insurance. Do keep in mind that the amount of cash needed at the closing will also depend on the month that you are closing, alongside the annual tax and insurance costs.

As a conclusion, escrow accounts are essentially established to cover necessary expenses that you actually really have to pay for. The initial escrow deposit is a short termed escrow type while the tax and insurance escrow deposit is a long termed escrow type which will most likely remain until you pay off your mortgage. It's actually a simple but important factor in every real estate transaction.