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What Exactly Is Escrow?
by Joe Taylor Jr.
CMR Columnist
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In simple terms, escrow means that a third party holds on to your money until it's time for that money to be used as a payment. In the world of home loans, that means you'll pay money each month into escrow for the annual property taxes and insurance you'll owe on your house while you make mortgage payments.
The Basics of Escrow and Your Home Loan
The beauty of escrow is that it saves you from having to discipline yourself to put aside money to pay large property tax and insurance bills at the end of the year. Your monthly mortgage payment will include the money you pay towards the interest and principal of your loan, as well as 1/12 of your annual property tax and insurance bill. The escrow agent will pay those bills for you when they come due.
The rapid rate of home construction in states like California has even encouraged builders to enter the escrow market. If you buy new home construction, the builder may offer to handle your escrow and your home loan for you.
Builder Financing and Escrow Packages Can Save Time
Builders often work with mortgage lenders and can provide the same services and safeguards as a lender you'd work with if you bought a pre-existing loan. If dealing with a builder for your mortgage and escrow makes you nervous, simply get an outside agent to work with you.
As you calculate your mortgage payment for your new home, don't forget to add in the amount that will go into escrow each month for property taxes and insurance. In a high-price state like California, the money going to escrow will add a significant amount to your monthly payment.
Sources
American Loan Search
EscrowHelp.com
Mortgage101
Wikipedia
About the Author
Joe Taylor Jr. coaches beginning mortgage brokers to provide better customer service and to understand creative financing opportunities.
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