They’re actually designed to make your life easier (whether they do or not is debatable) by giving you a way to pay your homeowner’s association fees, property taxes, mortgage insurance and homeowner’s insurance monthly, instead of all at once. Mortgage escrow accounts, the kind we’re discussing today, are another beast entirely. This money can be refunded if there is something seriously wrong with your home or the seller doesn’t hold up their end of the deal, the terms of your escrow are spelled out in your real estate contract. Real estate companies discovered long ago that by holding the funds, they can be confident you’ll follow-through with your agreements and not be tempted to use that downpayment money to pay for unexpected expenses prior to closing, hence the insistence on their use. This type of escrow account is where your earnest money (and sometimes your downpayment) will be held until you close on your new home. Real estate sales escrow accounts are often just referred to as “escrows” by Realtors and the people in their offices. The contractor can request these funds using construction draws, but he has to support his money requests with receipts. The bank then releases these funds as each step is completed to a third party company (often a title company) who holds them in escrow. The contractor agrees that they will complete their project in a number of steps and provide an estimate for the amount of funding they’ll need for each part of the process. Both homes under construction and those being extensively remodeled are eligible for these types of loans, but they all work in a similar way. Here’s a quick explanation of the different types:Ĭonstruction escrows aren’t something most homeowners will ever encounter - they’re used strictly by construction professionals in conjunction with their construction loans. They can be used for a number of things in real estate, from construction and remodeling projects and holding down payments in a secure location to the most common usage, establishing a fund via monthly contributions from a homeowner to pay for their home’s taxes and liability insurance. What is an Escrow Account?Īn escrow account is an account where funds are stored for a future purpose, the conditions of which are spelled out in detail in a contract all involved parties must agree to. Luckily for them, we’ve got it all covered in this article. Still, a lot of people have questions about their escrow accounts that their bankers, closers and Realtors simply cannot or will not answer. This innocuous little account slowly melts into the background the longer you have it, so long as it functions properly. You need deposits for the utilities, a great big moving truck and even more cash for something your banker swears he told you about - your mortgage escrow account. As your closing approaches, it seems more and more like everybody and their uncle is crawling out of the woodwork to demand your hard-earned money.
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