Understanding Escrow for Mortgage and Homebuying, Part 3
In parts one and two of this multi-part blog series, we’ve gone over all the important information you need to know about escrow in a mortgage and homebuying situation. Used to keep both buyers and sellers protected with large sums of money changing hands, escrow involves money being held by a third party during certain parts of homebuying negotiations or during mortgage payments.
At Primary Residential Mortgage, we’ll be happy to go over escrow and any other details you’re wondering about when it comes to any of our home loan services or homebuying programs. We offer a huge variety of mortgage loan programs, from conventional loans to FHA Loan, VA loans and many others, and will walk you through the process for any of them. In today’s final entry in our series, we’ll go over some last details to be aware of on escrow, including how it’s managed and its overall pros and cons for homebuyers.
How Escrow is Managed
As we noted above, escrow accounts are handled by a third party. Here are some of the third party types that might be utilized for managing escrow in a given homebuying situation:
- Escrow companies or agents: These are specialized entities or individuals, often the same as the title company, who manage your deposit and possibly the deed and other home sale documents. The escrow company works for both the buyer and the seller, meaning the two usually split the fee evenly.
- Mortgage servicer: In other cases, the mortgage servicer who collects your mortgage payment will also manage your escrow account. This may be your lender in some situations, or it may be a different company in others.
General Benefits of Escrow
As we’ve gone over to this point, escrow holds benefits for several parties within the homebuying process. It assists homebuyers by protecting your deposit, especially in situations where you still have to go through a home inspection or other parts of the process that might derail the sale and require your funds be returned to you.
Escrow also benefits sellers by ensuring a deposit is made in good faith toward their home when they pull it off the market. It helps new homeowners with making payments for taxes and insurance, plus even benefits lenders through ensuring such payments are made and no liens or other issues take place on the home.
Drawbacks of Escrow
Now, there are some situations where escrow has drawbacks for homeowners. It may lead to higher mortgage payments or changes in monthly payments, plus there can be changes in terms of improper estimates on tax and insurance bills. In most cases, however, these potential downsides are worth it for the benefits escrow brings.
*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.