How Does Escrow Work?

Transcript

When you buy a home, your money doesn't go straight to the seller. It goes to escrow. Here's what that means — and where it shows up twice. Escrow is a neutral third party — usually a title or escrow company — that holds money until the agreed conditions are met. You meet it in two places. First, at closing — escrow holds your earnest money and the documents until every condition is met. Then, every month, your lender runs an escrow account for your property taxes and insurance. Say your property tax runs thirty-six hundred a year and insurance twelve hundred. That's forty-eight hundred, split into twelve — about four hundred dollars added to your payment each month. The lender pays those bills when they're due. Here's the part that surprises people. The lender can hold a small cushion — capped by law at about two months, roughly eight hundred dollars here. And once a year they re-run the math, so if your taxes or insurance rise, that four-hundred-a-month rises too. So check two things. If your taxes jump, expect a shortage that raises next year's payment. And with enough equity, some lenders let you waive escrow and handle the bills yourself. See how escrow lands on your own numbers at worthune.com. Worthune turns money decisions into math you can see and re-run — every assumption named. A friend who's good at math. One note: this is educational only, not financial advice. The figures are illustrative. Your situation is unique — talk to a professional before you act.

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