What is escrow and how does it work?
In: Economics
Escrow basically means money held by a neutral third party. Most commonly, you’ll hear of it connected to buying or owning a home. During a home purchase, the buyer typically puts up earnest money along with the initial offer and part of the down payment once the inspection and other contingencies are met, and that money is held in an escrow account — neither the buyer or seller has direct access to the money.
Once one buys a home, the mortgage servicer typically collects money into an escrow account with each monthly mortgage payment in order to pay the homeowners insurance and property taxes when they are due. In this case the mortgage services is the 3rd party between home owner and those receiving the annual/semi-annual payments.
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