Are you wondering what an escrow account is? Curious whether you need one or not? Let's break it all down and find out!
What is an Escrow Account
Escrow accounts are used to manage and pay various expenses on a home, such as property taxes, homeowners' insurance, and even mortgage insurance.
Your lender deposits a portion of your monthly mortgage payment into your escrow account, which is managed by a third-party. Then, it is held in that account until your payments are due.
Do I Need an Escrow Account to Buy a Home?
Whether you need an escrow account depends on various factors, including your loan type, lender's requirements, loan-to-value ratio on your property, and more.
An escrow account protects the buyer, seller, and lender from disputes or financial hardships because of defaulted payments. As a result, some lenders require you to have an escrow account as a condition of your mortgage agreement. However, escrow might be optional for others.
Benefits of an Escrow Account
Having an escrow account makes budgeting simple and hassle-free. You will only make a single monthly payment that covers all your monthly expenses—instead of paying them separately.
Plus, an escrow account ensures that all property-related bills are paid right on time! No need to mail out a handful of different checks every month and worry if they reached their destination.
Some lenders will provide a discount for buyers who agree to use an escrow account, so it can end up saving you money in the long run, too.
Have you used an escrow account before? Let's chat—leave a comment below! Feel free to check out our blog for more mortgage and home-buying resources.
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