Real Estate Escrow; An Overview

Purchasing a home is a scary time for many new homeowners.   Full of anxiety, the homeowner is found to Manipulate through fianancing options, as the closing date has finally arrived.  With the real estate closing date comes a new set of issues involving the establishment of an real estate mortgage escrow account.  For new homeowners, understanding the dynamics involved in the escrow account will provide for a more smooth and less anxious transition through the real estate closing process.

The word escrow is generally considered a legal term used to describe an establishment of a legal agreement in real estate. When purchasing a home, the real estate escrow account is established as an agreement between you and the mortgage company, or lender, is afforded the to ensure payment of specific monetary obligations. Let's examine, further, the items which are included in an escrow account. 

First, the escrow account will include an agreement for payment of real estate taxes. Under this agreement, the mortgage company agrees to ensure payment of real estate taxes on the property, annually, and, in exchange the homeowner will pay these taxes, in monthly intervals, as part of the mortgage payment.  As the tax rates fluctuate, the tax assessor will notify both the homeowner and the lender of the change in rate and, in turn, the lending mortgage company will adjust the required monthly payment.    As a general rule, unless there has been significant fluctuation in the real estate development, the monthly mortgage payment will not change drastically.

In addition to real estate taxes, the escrow account may also include a legal agreement to maintain homeowner's insurance on the property.  While homeowner's insurance can include Mortgage Protection Insurance (MPI), Lender's Placed Coverage and even standard homeowner's insurance.    By including the insurance premium into the mortgage, the lender is assured the dwelling is protected in the event damage occurs.