In the real estate planning industry the legal term escrow is a typical word. It is actually a neutral third party company that is hired to follow the actions that are dictated both by the buyer and seller. This neutral party must have the confirmation from both the buyer and seller and if two separate sets of directions are given to escrow they can not move forward until there are some resolutions. That means both the buyer and seller have to be in the same page, so to speak, being in complete agreement.
Escrow also gathers documents towards the end of the transaction. That includes the loan document from the lender, instructions from both the buyer and seller which come from both their agents as their representatives. Escrow will compile and organize all the numbers and create what is called the settlement statement. The buyer and seller will review the settlement statement with the escrow agent at the escrow company and sign the document once everything has been settled.
Although the word escrow may sound scary for some, it is something that is loosely used by those who know it. In fact, many people do not even recognize what escrow is even while they are undergoing the process.
When you found a piece of real estate, may it a piece of land, a home, or a commercial building that you want to buy, you put down a good fate deposit with the person that is selling. The buyer puts down that money and usually it is held in trust or escrow with an attorney. That down payment is placed there for period of time until the details come to fruition and the ownership passes from the seller to the buyer. The deposit you make is called escrow funds. Escrow funds are also used to pay taxes and insurance.
When you set up an escrow account, the lender will set one twelfth of your insurance and one twelfth of your taxes. That means that if you pay 12 hundred dollars per year on your insurance, your agent will take 100 dollars per month from that and add it to your principal and interest payment along with your taxes. If your taxes are $ 2,400 a year, the lender will set up in your escrow account $ 200 per month and add it to your payment to take up for the tax bill that will be due the following year. With the bills that are due, you are actually paying one twelfth of each month of those which means that in 12 months you actually have a full amount in your escrow account to pay those bills. Escrow is really a great benefit both for the lender and borrower. These ensure that payment will be met on time. There will be no need to prepare a lot of money every six months to meet the date of payment for taxes and insurance.
Hiring an escrow agent may be a hard task, but all worth it.