If you plan to buy a home or recently have, the term escrow account should be ingrained in your brain. In its simplest form, an escrow is a legal agreement where a third party takes custody of a large sum of money or property until a predetermined condition has been met, which could be purchasing a new home. For real estate, escrow accounts have two main purposes:
- Home Buying: Protects both the buyer and the seller by holding a deposit in a separate account in good faith.
- Taxes & Insurance: May be required by a mortgage lender whereby a portion of your monthly payment for your home is set aside in a separate account out of which your homeowner’s insurance and property taxes are paid.
When you buy a home, your purchase agreement will likely include language around a good faith deposit, otherwise known as earnest money, which protects both the buyer and seller. For instance, if the deal falls through because of the buyer, the seller usually gets to keep the earnest money. In addition to earnest money, your mortgage lender may also establish an escrow account used to pay for homeowner insurance and property taxes. Given that your tax bill and homeowners insurance can either increase or decrease from one year to the next, this amount can change over the lifetime of your loan.
At Harris Insurance in Jasper, AL, our talented and knowledgeable team of insurance professionals will walk you through every step of the process to find the right homeowner’s insurance policy and answer your questions on escrow accounts. Give us a call today to learn more.