Approximately 78% of people who purchased homes in 2022 chose the route of financing to make payment, which makes financing a home the most common way to buy a house.
The lenders issuing these loans set rules the borrowers must follow, and a common one is using an escrow account.
You may need an escrow account if you're buying a house, however, you should talk to a closing attorney to learn more about it. Escrow accounts are helpful to borrowers and required by many lenders.
Before closing on your home loan, you should learn how escrow accounts work. The following guide is to help you understand what you need to know about escrow accounts from a title insurance company.
What is Escrow?
Escrow in real estate includes two separate things.
First, escrow holds money a buyer gives a seller when negotiating a home purchase. Real estate attorneys help with these transactions by holding the money until the deal closes.
Secondly, escrow is an account that borrowers use to save money for future home expenses. This money is for property taxes and home insurance.
You can prepare for closing day by learning these things and understanding these two types of escrow accounts.
How Does an Escrow Account Work?
When buying a home, you offer earnest money to show that you want to buy the home. A real estate lawyer holds this money until closing. You'll get the money back if the deal falls through for a reason out of your control.
The other type of escrow requires monthly escrow payments, which is made each month when you pay your mortgage.
Lenders determine the escrow amount by adding the annual cost of home insurance and property taxes. Next, they divide this total by 12 months to determine your monthly escrow amount.
In a sense, you're placing your escrow payments in a savings account. Then, your lender takes this money out and pays your home insurance and taxes when they're due.
What Are the Benefits of Escrow?
Most lenders require escrow accounts. However, some lenders let you choose. Additionally, someone paying cash for a house can also open an escrow account if they choose.
The primary benefit of escrow is it provides a budget for paying your home insurance and taxes. By saving a portion of these expenses monthly, you can avoid coming up with large amounts of money all at once.
Budgeting is a vital part of money management and opening an escrow account simplifies your budget.
Who Manages Your Escrow?
You can discuss your escrow account with a real estate attorney to learn more about its management, but you should know that your escrow account opens on the date of your real estate closing.
In most cases, mortgage lenders manage these accounts through third-party services. Title companies might also offer this service.
Hire a Closing Attorney and Title Company for Help
Buying a house is a large purchase, so you shouldn't do it alone. You can hire a closing attorney and title company for help. By doing this, you can ensure a smooth home purchase and closing.
Contact us at Emerald Coast Title Services if you need assistance in Florida. We can help with every aspect of your home purchase.