How Does an Escrow Account Work?

A simple way to explain an escrow account is to think of it like a holding tank for your money. During a real estate transaction, an escrow officer who is typically a lawyer or representative from the title company, holds all important documents and deposits in an account while final details of the transaction are worked out.

The escrow officer's job is to make sure the closing on your house goes smoothly and to ensure everyone gets paid what they're owed. Escrow officers typically charge a fee of 1% to 2% of the cost of the home for their services. After closing, the officer makes record of the deed and title transfer that makes the home officially yours.

In addition to the escrow account used for holding deposits and documents during closing, there is typically also a second type of escrow account used during the transaction. This second account is between you and your lender, and is used as a holding area for money used to pay property taxes and insurance. When you make your monthly mortgage payment, a percentage goes into escrow to help cover the estimated annual tax costs, while the rest goes to paying principal and interest.

At the end of each year, your lender may adjust your monthly escrow account to compensate for any under or over-payment of your tax and insurance bills. If you are short one year, you are generally able to spread the difference owed out over the next year. If you pay in too much, your lender will refund the difference to you.

We understand that financing a home can be a daunting task, but the experts here at Butler Mortgage are here to help. Our Loan Officers will do everything possible to make your mortgage experience as painless as possible, so you can spend less time worrying, and more time enjoying your home. Call us today at 407-931-3800 with any questions.