How Escrow Works

Many people aren’t certain exactly how escrow plays a role in the mortgage loan process. The best way to explain how escrow works is to think of it as a third party that is involved in the loan process. This third party has a specific purpose of making sure that your home closing transactions are handled properly. Think of it as a mortgage security blanket. The escrow account holder ensures that both parties involved (the buyer and seller) meet all terms and conditions before closing on the mortgage loan.

They may request the following documents:

  • All loan documents
  • Title insurance policies
  • Tax statements
  • Insurance policies
  • Requests for payment of any items to be paid from the escrow funds
  • Terms of any seller-assisted financing

An escrow account can even used during the life of the loan as well. This account can hold funds for mortgage expenses such as property taxes and home insurance. The funds in the escrow account are built from payments made at closing and continual payments that come from a portion of the monthly mortgage payments.