What are escrow accounts?
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Escrow basically means held by neutral 3rd party. The most common types of escrow accounts are related to real estate — before and after purchase. During the “under contract” period, earnest money and down payment funds will be held in escrow. This proves the buyer has the funds while the seller cannot access until all parts of the contract are complete and deal closes.
Once somebody buys a home, their mortgage company typically holds money in an escrow account, collecting 1/12 of projected insurance and property tax each month to pay those bills when they come due annually or twice annually. The mortgage holder wants to make sure there are no issues of home owners not being able to pay a large bill when it comes due and putting their collateral at risk.
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