What Is Escrow?


When you’re buying a home along 30A, you’ll hear all kinds of real estate terms that may be unfamiliar to you. One of them – escrow – is incredibly important.

But what is escrow, what’s it used for, and how does it affect your real estate transaction?

What Is Escrow? 

Escrow is commonly used in real estate transactions, but it’s used in other transactions as well. Any time there’s a major financial transaction between two people, escrow is an impartial third party that holds valuable assets until the transaction is complete. In real estate, your earnest money deposit and important documents are held in escrow until you close on the home.

A Word on Earnest Money

When you buy a home, you’ll typically need to come up with an earnest money deposit. Also called a good-faith deposit, this is a sum of money that shows the seller you are serious about buying his or her home. Usually, the earnest money deposit is somewhere between1 and 3 percent of the homes sales price.

What is Escrow SQ

You don’t actually get your earnest money deposit to the seller. Instead, you give it to your real estate agent, who then puts it in an escrow account with a bank or another financial institution until closing day. If everything goes well and you end up purchasing the home, your earnest money deposit will go toward your closing costs or your down payment.

Pro Tip: Never give your earnest money deposit directly to the seller. If you’re working with a real estate agent, he or she will handle the deposit – but if you’re not working with a real estate professional, you need to hire an outside professional to hold your deposit in escrow. Many title companies and attorneys offer escrow services.

What is a Lender Escrow Account? 

There’s more to escrow accounts than simply holding earnest money deposits. In many cases, lenders set up a lender escrow accounts to pay your home insurance and property taxes when they become due. That’s because tax and insurance bells usually go directly to your lender. They’re payable annually, but as a general rule, lenders take some money out of each of your monthly mortgage payments to put in an escrow account. The money accumulates in an escrow account until the lender pays your taxes and insurance the following year.

What is an Escrow Account Cushion? 

Some lenders require you to keep a cushion (an excess balance) in your escrow account in case you have to pay more in tax or insurance the following year. Legally, the cushion can’t be more than one-sixth of the total amount the account pays out of the account each year. That usually equates to about two months’ worth of escrow payments.

Are You Buying a Beach Home for Sale in a 30ACommunity? 

If you’re thinking about buying a beach homefor sale in one of 30A’s communities, from Alys Beach to WaterColor, we can handle all details pertaining your escrow.

Call us at 850-213-3048 or contact us online to talk about what you want from your next home. We’ll begin a custom search just for you.

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About 30A Local Properties: 30A Local Properties is located in Grayton Beach, FL and services the South Walton community. The team of locals confidently offers the experience of over six hundred South Walton real estate transactions, nearly three decades of banking experience in commercial and residential property holding positions, and over a decade of entrepreneurial real estate experience in property investments and management. Visit our website at www.30alocalproperties.com or stop by our office and meet the team: 30A Local Properties 35 Clayton Lane, Suite B Grayton Beach, FL 32459 P: (850) 213 3048 F: (850) 213 0035