What does "Escrow" mean?

Definition

An escrow account is a third-party account where a lender holds funds to pay for your property taxes and homeowners insurance. A portion of your monthly mortgage payment goes into this account to cover these bills.

Understanding Escrow in Mortgages

Escrow appears as you finalize your home purchase. It holds funds for property taxes and insurance. Think of it as a secure holding area. Each month, you pay into it along with your mortgage. Example: If taxes are $1,200 yearly, you might pay $100 monthly into escrow. It's not a savings account or extra fee. Instead, it's a way to manage and ensure timely payments. Remember, it doesn't add costs; it organizes them. This helps avoid missed deadlines or large lump-sum payments.

People Want To Know

Who pays the mortgage during escrow?

The homeowner pays the mortgage during escrow. Monthly mortgage payments include principal, interest, property taxes, and homeowners insurance, with the latter two being deposited into the escrow account. The lender uses these funds to pay property taxes and insurance when due.

Why did my escrow go up $200?

Your escrow may have increased by $200 due to a rise in your property taxes or homeowners insurance premiums. Lenders adjust escrow accounts annually based on these costs to ensure there are enough funds to cover the bills when they are due. If there is a shortage in the escrow account, your monthly payment will also increase to make up for it.

What does it mean when you put a house in escrow?

When you put a house in escrow, it means that a third-party service holds the property and financial documents while the buyer and seller finalize the sale. The process typically lasts 30 to 60 days, during which inspections, appraisals, and financing details are completed before the transaction is officially closed.

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More From The Mortgage Glossary

Fair market value (FMV)

Fair market value is the price a property would sell for on the open market, with a willing buyer and seller. This is a common term used in real estate transactions.

Fannie Mae

Fannie Mae is a government-sponsored enterprise that buys mortgages from lenders. This helps keep the housing market stable and ensures there is enough money for more home loans.

Federal Housing Administration (FHA)

The Federal Housing Administration, or FHA, is a government agency that insures FHA loans. By backing these loans, the FHA makes it possible for lenders to offer mortgages to a wider range of borrowers with lower down payments.