Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met, such as the fulfillment of a purchase agreement. In the context of buying a house, escrow is used to protect both the buyer and the seller throughout the home buying process. There are two types of escrow accounts used in real estate:

• Homebuyers escrow: This account is used to hold a portion of monthly mortgage payments on behalf of the homeowner and lender. Once a homebuyer’s offer is accepted, their earnest money deposit is held in an escrow account until the sale is complete. The funds in a homebuyers escrow account typically go toward the down payment or closing costs.

• Homeowners escrow: This account is used to hold a homeowners funds for property taxes and homeowners insurance. Throughout the term of the mortgage, an escrow account will hold funds for taxes and homeowner’s insurance. The lender uses funds in the account to pay these bills on the homeowner’s behalf. Doing so could reduce the risk of late payments or liens against the property.

When you close on a mortgage, your lender may set up a mortgage escrow account where part of your monthly loan payment is deposited to cover some of the costs associated with home ownership, such as real estate taxes, insurance premiums, and private mortgage insurance. The lender is responsible for managing the escrow account and paying bills on time. The lender may require an “escrow cushion,” as allowed by state law, to cover unanticipated costs, such as a tax increase.

In summary, escrow on a house is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met. In the context of buying a house, escrow is used to protect both the buyer and the seller throughout the home buying process. There are two types of escrow accounts used in real estate: homebuyers escrow and homeowners escrow. The former is used to hold a portion of monthly mortgage payments on behalf of the homeowner and lender, while the latter is used to hold a homeowners funds for property taxes and homeowners insurance.