Real Estate 101: What is Escrow?
Updated: Oct 23, 2022
When entering the world of Real Estate, you will find that there is a handful of vocabulary you need in order to grasp what is going on. Among those words, you will find the heavy-weighted word Escrow. Understanding what this term means will set you up to make decisions that will help make the closing process more simple.
What is Escrow?
In simple terms, escrow is when a third party manages the transfer of money & documents during a Real Estate sale. It's a deed or a contract for a property or lump sum of money that is held by the third party and becomes actionable when specific conditions have been met.
Stating that a property is in escrow means that a transfer of title is taking place. There is no set time frame in which a property is in escrow.
Escrow also includes your Homeowners Insurance, Primary Mortage Insurance, and property taxes. This agreement is set up by a lender on your behalf.
Benefits of Escrow
Provides protection for both the buyer and the seller. Especially when Real Estate, large ticket items, and lump sums or money are involved.
Allows for monthly payments to be made towards insurance and taxes. Rather than requiring an individual to make large lump sum payments.
Potential Drawbacks of Escrow:
Higher mortgage payments
Inaccurate estimates on taxes
Online Escrow service fees
When Escrow is Required:
If you go in on a property with a less than 80/20 loan to value (aka <20% Down Payment), you need primary mortgage insurance which is 1 of the 3 main facets that call for escrow.
To provide protection for both buyer and seller, a purchase of a property will involve an escrow account.
Once you have an escrow account, there is a five-year requirement. However, if the conditions of the account are not met, the term may be extended.
Questions about the process of Buying Real Estate?
Escrow is just one of a dozen items on a checklist when buying a new home. Whether this is your first time buying a home or one of many, it's likely you'll experience this process. With all of the different legal & financial requirements in a Real Estate transaction, having an Agent who helps you navigate the mountains of information can make your buying process easy. Grimm Realty Group is located in the neighborhood of West Saint Paul, Minnesota where Doug has been a Real Estate Agent for over 20 years. We're here to help you through every step of the process & develop a strategy that is catered to your specific needs. Give us a call today or follow us for more insights on the Twin Cities & for regular updates on the Real Estate Market!
Call Grim Realty Group today or follow us for more insights on the Twin Cities & regular updates on the Real Estate Market!
Real Estate 101: What is Escrow Sources:
Mohawk Moving & Storage: History of the Twin Cities
About Historic Twin Cities
Modern Urban Lifestyle: A Brief History of Minneapolis and Saint Paul
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The content on this page provides general consumer information. It is not legal advice or regulatory guidance. Grimm & Associates may update this information periodically.
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