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WHAT IS AN ESCROW ACCOUNT AND HOW DOES IT WORK | ESCROW EXPLAINED - YouTube
Channel: Andrew Castelo
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You're probably wondering, what is an escrow account?
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Today in this video we're going to be answering that right now.
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Hey, what's up? I'm Andrew Castelo with Keller Williams Realty
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in Sacramento California. I have
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a special guest with us today. This is...
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Hi I'm Natalie with Chicago Title Company.
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Today we will be talking about what escrow is.
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And how to set up an escrow account.
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Just demystifying the term and what it means
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What is an escrow account?
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In real estate jargon can be really
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confusing and one of the most confusing
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things is a new buyer will hear the term
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escrow used in various different ways.
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The escrow title company and they'll also hear
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the term in regards to their impound account.
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They're escrow impound account and those are 2 very different things.
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So the escrow title company is the neutral third party
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that takes care of making sure that
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everything that is agreed to in the contract is adhere to.
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The escrow impound account is acctually
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held by the buyers lender.
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It's very different than the title company that's
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handling the transaction. Now that we know what an escrow account is
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When is escrow opened up?
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There's 2 ways, escrow is usually opened when a buyer
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comes into contract
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and by that meaning the escrow officer
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assigns a number to the contract
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and now there is a title company
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that's going to be handling the transaction for them.
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That is an open escrow
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and then an open escrow account comes when
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the buyer's lender requires
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the escrow company to send
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them funds to get the escrow impound account started.
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I know this is clear as mud
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but the whole point is that this particular account
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is set up to let the buyers property taxes
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and hazard insurance gets paid for annually right out of
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of the money that gets sent in in collection with their mortgage payment
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Just so you know, once you have an accepted offer
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Let's say you're a buyer and you have an accepted offer
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The escrow account usually gets opened up
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with in a few days of the accepted offer.
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The money is actually used for 2 very important things
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It's used for the payment of the property taxes
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and its used for the payment of the hazard insurance
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Why this is so important to the lender is because
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the lender is invested in you and making sure
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that you are current on your taxes and insurance.
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So that their investment as far as lending you money stays intact.
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If you don't pay your property taxes
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the tax collector can come in
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and seize the property from you and the lender
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so the lender doesn't want that to happen.
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If you don't pay your hazard insurance and something happens
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to your house, the poor lender doesn't have
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any way to recoup their funds
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if you don't pay your mortgage payment. What the lenders do
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they say listen
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we will pay your property taxes and your hazard insurance for you.
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We'll collect it in the mortgage payment and when they come due
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we will take care of those bills for you.
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We make sure in escrow that we have all the money
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for the initially set up of the account
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collected so that when that
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next bill comes due the buyer
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already has some money in that account.
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That's why when we go to sign the documents
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you have to pay for your final closing funds there. Some of
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that includes up front months payments for your impound account.
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Natalie it's great that you brought that up
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in another video that I did earlier I'll link it here
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One of the things that's brought up are property taxes are considered cash to close.
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or one of the closing costs
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so it's money that you do need to bring to the closing table
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at the end of the transaction when you are signing all of your documents.
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You have your closing cost for the lender
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and the closing cost for the escrow company and property taxes are one of those.
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It's considered a recurring closing costs because
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that property tax bill
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is going to continuously come every year in 2 installments.
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We collect that upfront so that
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you are ready to rock and roll when that next bill comes due
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we have another video
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explaining what supplemental taxes are
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Actually Andrew they are the same.
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This is where that funny jargon thing keeps coming up.
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It depends on who you are talking to some people
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call it an impound account and some people call it an escrow account.
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At the end of the day, it's a little savings account that your lender has set aside for you
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that is to house all the money that pays for your property taxes and hazard insurance
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We're going to be doing another video that explains supplemental tax bills
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and closing costs
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so I want to clarify that that impound account
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will not pay for the supplemental bill. That is a bill that
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the buyer is responsible for after the close of escrow.
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Natalie, thank you so much for you time today.
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I'm sure this helped out a lot of people demystify what the heck escrow is
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If you liked this video, please make sure you like and subscribe to my channel
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I do new videos every single week real estate related
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so anything you want to know, we're going to cover it... bye bye!
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