Securing a home loan and buying a home involves terms, concepts and services that can be confusing to home buyers, especially to first-time purchasers.

One of those terms is “escrow” or “escrow account.” Simply put, placing funds into an escrow account means that money is held by a third party in a financial transaction.

Money in escrow is secure and carefully monitored by agents who hold the funds until they are certain each of the parties in the transaction have completely met their contractual obligations.

At that point, the mortgage holder’s escrow agent or company involved will release the funds.

Who benefits from placing funds in escrow?

escrowSecuring funds in escrow protects all parties involved in a financial transaction such as the purchase of real estate.

From a buyer’s standpoint, money placed in escrow shows the seller that the buyer is serious about the purchase. It also protects buyers from losing their earnest money should a seller withdraw from the transaction before it is completed.

Money in escrow also effectively “holds” the property while the home loan, title work and transaction documentation is completed. In addition, should the seller fail or refuse to complete repairs included in the sales agreement, the buyer’s money held in escrow will usually be returned to the buyer.

For sellers, money in escrow can assure – to some extent – that the buyer isn’t simultaneously making offers on multiple properties, thereby taking those properties off the market. In such cases, a buyer could back out of several of the deals, picking the best of the lot and leaving the rejected sellers with a home that has been listed as off the market or “under contract.”

It also can mean the seller can keep the money held in escrow if a buyer fails to meet the transaction’s contractual obligations.

This offers a great degree of protection to all parties in the transaction.

Escrow is also a convenience

Home ownership brings with it several unavoidable and important expenses, including taxes and insurance. Money can be placed in escrow and then paid to insurance companies, or to taxing entities to meet property tax obligations, for example.

Most insurance companies offer monthly payment options for homeowner’s insurance. Property taxes, however, are generally paid annually.

Many homeowners and mortgage holders choose to use an escrow account into which a monthly property tax payment is deposited. When property taxes are due, the money earmarked to pay those taxes is then released to the taxing authority.

This means homeowners aren’t hit with a bill for a full year of property taxes – which typically reach thousands of dollars – and instead break the cost down into smaller, manageable monthly payments.

It also gives homeowners assurance that the property taxes are paid correctly and are on time, thereby avoiding any late fees or penalties.


Buying a home – especially for the first time – is an exciting experience, but also one that can be complex and overwhelming at times. After all, for most people, buying a home is a new experience.

Contact us today and let our experienced loan officers simplify and clarify the process, and help you get approved for the mortgage and secure the related services that best meet your individual goals and needs.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.