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A Better Understanding: What Does Escrow Mean?

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If you’re thinking of buying or selling a home in the near future, most likely some of your money will go to an escrow account. If you’re a first time home buyer, escrow is something you’ve likely heard of but may not understand exactly what it means. What does escrow mean? Let’s take a quick tour of what these accounts do and how they work.

What is Escrow?

Escrow is an agreement for a third party bank account to be established to hold money for an agreed upon future transaction. Escrow accounts are used as a secure way to ensure all  parties fulfill their designated obligations in real estate as well as other transactions.

When You May Need An Escrow Account :

  • Buying or selling real estate
  • Transactions involving expensive items, such as art, jewelry or antiques
  • To pay yearly insurance and tax fees while under a mortgage

Is Escrow Good or Bad?

In the realm of real estate the advantages of escrow are that; it provides security in high level transactions, ensuring that all parties follow through in their obligations to the contract. After the purchase of a home, escrow accounts through your mortgage lender allow you to save for yearly payments like property taxes, mortgage insurance, and homeowners insurance instead of being responsible for yearly lump – sum payments. 

At the same time, establishing an escrow account for a potential real estate purchase will require a sum of money up front. Even after a real estate purchase is complete, using escrow to save and pay yearly tax and insurance fees will mean higher monthly mortgage payments than if you’re just paying principal and interest alone. There is also a risk of incorrect estimate by the escrow company, causing them to withhold too little or too much money each month. Errors like this will be resolved by payments or requests for payment in the amount of the difference.

The Bottom Line:

Escrow protects the buyer and seller in a real estate transaction, and helps the buyer manage related yearly expenses after purchasing a home. An escrow account is a common, useful tool that adds convenience and a layer of assurance to home buyers, sellers and owners. 

Ready to begin the buying or selling process?  Check out all the services we offer at Mid – Coast Title Co. For more information, reach out to us at

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