When buying a house, escrow is a financial arrangement where a neutral third party, called an escrow agent, holds funds and documents related to the transaction until all conditions of the sale are met. This includes holding the buyer’s earnest money deposit, down payment, closing costs, and the property title securely until the sale is finalized
. The escrow process protects both the buyer and seller by ensuring that the money and property are only exchanged when all agreed-upon terms-such as inspections, appraisals, financing approval, and title verification-are satisfied. The buyer cannot take possession of the home until escrow is complete, and the seller cannot access the funds until they have fulfilled their obligations
. There are two main types of escrow accounts in real estate:
- Escrow during home buying: Holds the buyer’s good faith deposit and other funds until closing.
- Escrow for ongoing payments: After purchase, an escrow account may be used by the mortgage lender to collect and pay property taxes and homeowners insurance on behalf of the homeowner
In summary, escrow acts as a trusted intermediary that manages the exchange of money and property to ensure a smooth, secure, and fair home buying transaction for both parties involved
