What does escrow cover?
Learn about it.
Navigating the path to homeownership and attempting to learn all the mortgage jargon can feel gruesome at first. It comes with a lot of terms you're not familiar with in everyday conversation. So it's not a surprise when you hear about it and wonder "what is escrow fee?" This installment of the ABCs of Mortgage is ready to help you understand what it is, entails and covers.
What is escrow fee?
Escrow is a fancy term for a third-party holding on to money until it's time to be paid. It's a way to protect both the buyer and seller in the home loan process. Typically, you'll pay something called earnest money, like a down payment for a down payment. When this occurs, the seller takes the house off the market and you commit to the purchase. That money is put into escrow and only paid when the agreement is fulfilled, giving incentive to both buyer and seller to come to a deal.
What does escrow cover?
No matter what kind of transaction, when people ask you to pay a fee – you want to know what it goes to. I know I sure do. And you have every right to want to know as well. So what does escrow cover, then? Since funds going toward escrow act as "a down payment for the down payment" as previously mentioned, it helps act as the beginning contract between the homebuyer and the home seller. Though, it does not just dissipate as a fee toward that agreement. Any monies for the mortgage escrow payment get held with a third-party in order to go toward taxes and fees. This will include property tax, homeowner's insurance, and (if necessary) flood insurance. So don't worry, it's still your money going toward your expenses at the end of the day.
Where do I take care of a mortgage escrow payment?
The escrow process will happen shortly after the seller has accepted your offer. When this has happened, your agent will request the funds from you to go into escrow. They will then be held by the third-party escrow company that has been outlined in the agreed-upon contract. So you'll just have to worry about making sure the terms are met in the contract with your agent, and send the respective mortgage escrow payment as determined.
Ok. So what now?
If you're just starting out in your home hunt, connect with your local loan officer to determine what your home buying budget is. Talk to them in this initial conversation to see how much you should anticipate saving up for your mortgage escrow payment so you're aware of what you need to have ready. If you're already in the buying process, keep in touch with your loan officer. They should be able to be your guide throughout the entire time.
Home buying comes with its stresses. And its costs, just like anything else. It's important to be in the know so you're aware of what to prepare to enjoy the freedom of your own home. That's why the ABCs of Mortgage is here. And if you find you're still having a hard time understanding what is escrow fee, feel free to touch base with us for any further questions.