Escrow
Definition
A neutral third party holding money or documents during a transaction. In real estate, escrow holds your down payment until closing, protecting both buyer and seller. During a mortgage, escrow holds funds for taxes and insurance, paying them annually.
Why It Matters
Escrow protects you in big transactions. If something goes wrong in a real estate deal, escrow prevents fraud. During a mortgage, escrow simplifies taxes and insurance by bundling them into your payment.
Example
Buying a home, put $30,000 down. Goes to escrow, not the seller. If the inspection finds $100,000 in termites, you can walk away and get your money back. After closing, escrow pays your property taxes and insurance from monthly deposits.
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