Escrow
An account held by a third party to collect funds for taxes, insurance, or closing costs.
Definition
Escrow serves two purposes in real estate. During a transaction, an escrow agent holds the earnest money deposit and closing documents until all conditions are met. After closing, an escrow account collects a portion of property taxes and insurance with each monthly mortgage payment, ensuring these bills are paid on time. Lenders often require escrow accounts on investment property loans to protect their collateral. The initial escrow deposit at closing typically covers two to three months of taxes and insurance. Some lenders allow escrow waivers for an additional fee or rate adjustment.
Related Terms
PITIA
The total monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction beyond the purchase price.
Property Tax
An annual tax assessed by local governments based on a property's assessed value.
Title Insurance
Insurance that protects the buyer and lender against claims on a property's ownership history.
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