Understanding the Escrow Process

At its essence, escrow is the process of transferring or financing of real estate with a neutral third party (the escrow agent). Escrow is essentially a clearinghouse for the receipt and exchange of the items needed to transfer or finance real estate. When all of the elements necessary to complete the real estate transaction have occurred, the escrow is "closed”.

How Does Escrow Work?

When it comes to real estate, escrow is used to temporarily hold the buyer’s earnest money put toward following through with the purchase of a home.

After the purchase is complete, escrow may also be used to hold some of the homeowner’s monthly mortgage payment, which is then automatically put toward taxes and insurance.

Escrow may be handled by a mortgage company, escrow company or escrow agent. Most of the time, an escrow account will be set up for you by your real estate agent.

How to Lower Your Escrow Payment?

Escrow is directly tied to your property taxes and homeowners insurance. The best way to lower your monthly escrow payment is to lower the cost of one or both of those payments. Shopping around for a new homeowners insurance may help you find a better rate that can lower your monthly escrow payment.

In Summary

Escrow is a common part of the home buying process. It serves to protect buyers and sellers alike, and it ensures that homeowners make certain payments, like taxes and insurance, on time.

Have more questions about escrow? Contact a Rocket Mortgage® mortgage expert.