Related Terms: Escrow Account
Documents you sign, or deposits you make in regard to your mortgage, go into an escrow account and are held by a third party. The items are released from escrow when certain conditions are met. Money held in escrow is usually designated for property taxes, earnest money deposits, hazard insurance, etc.
The FHA mandates that a loan insured by them comes with an escrow account. Lenders of conventional loans make the decision whether or not they require escrow to be set up. In addition to monthly mortgage and interest payments the lender can also collect property taxes and homeowner’s insurance that will be paid when those bills are due. According to federal law, mortgage holders are obligated to send you an annual statement regarding the activity of your escrow account.
There is a different escrow account set up while the home purchase is being negotiated. All items and funds in this escrow are held by an escrow officer (who is normally a representative of the title) until the time of closing. At this point it is his job to ensure that all the money and paperwork held in escrow is disbursed between the appropriate parties, whether it be buyer or seller.
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