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All About Escrow

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What Exactly Is Escrow?

Where mortgages are concerned, "escrow" and "escrow accounts" refer to two slightly different concepts. Escrow is the process by which a neutral third party mediates a real estate deal, holding money and property "in escrow" until the two sides agree that all the conditions are met for a sale to close. By contrast, an escrow account is usually an account that helps to manage a mortgage borrower's annual tax and insurance costs.

How Do Escrow Accounts Work?

When you obtain a mortgage loan from a bank or direct lender, you also receive an escrow account that helps you pay your property taxes and homeowner's insurance premiums on time. Even though these costs are paid on an annual basis, your lender will require you to pay a monthly fraction towards each cost and accumulate the balance in your escrow account. This ensures that these expenses get paid on time every year.

How Much Are Escrow Fees?

Just like any other service provider involved in a real estate deal, the escrow agent will need to be paid a fee. Escrow services for a home purchase typically cost 1% to 2% of the final price. Based on national median home values, this translates to a fee of $2,000 to $4,000, which is added into your other closing costs. However, escrow fees are one of the many expenses that are negotiable between the buyer and seller. This means that you can try asking the other party to foot part or even all of the escrow fee, depending on local rules or the current market conditions.

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