What Is Escrow?
An escrow account is essentially a holding tank.
It is typically referred to in 2 different ways during real estate transactions.
When you write a contract, you will also provide the Seller with a pre-approval or proof of funds letter, and a committed amount of earnest money. There is typically no “set amount” for earnest money, though the Seller may request a certain amount.
The most common amount of earnest is around $1,000.00 though this can vary with different types of purchases. The real estate broker that you have chosen to represent you will provide the closing attorney the contract and the amount of earnest money to be collected. The attorney will collect the earnest money and deposit it into an “escrow” account at the time of the contract. This money will be held until closing and will then be applied to the purchase price of the property you are purchasing.
Most transactions involve a second type of escrow account, between you and your lender. Many mortgage lenders hold money in “escrow” to pay property taxes and insurance. Each month, you pay a portion of the estimated annual costs along with your principal and interest.