How Does the Closing Escrow Process Work?
When a purchase contract is signed, the buyer's earnest money deposit goes into escrow. The escrow company or attorney holds all funds and documents — the deed, loan proceeds, and purchase price — until every condition is satisfied, including inspections, title clearance, and loan approval. At closing, the escrow agent disburses funds to the seller and records the deed.
What Is a Mortgage Escrow Account?
Most lenders require an escrow account for property taxes and homeowners insurance. Each month, a portion of your payment goes into this account. When tax bills or insurance premiums come due, the lender pays them directly. This protects the lender from tax liens and uninsured losses while ensuring homeowners don't face large lump-sum bills.
Can You Opt Out of a Mortgage Escrow Account?
Some lenders allow borrowers with 20% or more equity to waive escrow, taking responsibility for paying taxes and insurance directly. Lenders may charge a small fee for this privilege. If you waive escrow, you must be disciplined about setting aside funds each month so you're not caught short when annual bills arrive.
Frequently asked questions
What happens to my escrow account when I sell my home?
When you sell, your lender closes the escrow account and refunds the balance to you, typically within 30 days after the loan is paid off. Any outstanding tax or insurance payments are handled at closing.
Why does my escrow payment change each year?
Lenders review escrow accounts annually. If property taxes or insurance premiums increased, your monthly escrow payment adjusts to cover the higher costs. A shortage means your payment rises; a surplus means you get a refund or reduced payments.