Escrow accounts can be used in different situations, however, there are two different types that will be used. One is used during the buying process of a property and the other is used when the property has been sold the buyer officially owns the home or property.

The Home Buying Escrow Account is to help the buyer against any hidden damages that may exist and the seller against any buyers leading them on. The Homeowner Escrow Account ensures that the annual property taxes and insurance payments are in fact paid and in a timely manner.

Home Buying Escrow Account

When buying a home, there is a good-faith payment requirement to show there is a true consideration for the property and to prevent against uncommitted buyers. The escrow is what holds this good-faith payment in check, in addition to other factors such as the property deed. In the event of a failed contract at the buyer’s fault, the good-faith payment (or earnest money) will be usually be given to the seller. If there are any undisclosed property issues or damages found during the inspection process, the buyer will receive the earnest money back. However, if no contract is breached, the money will go towards the buyer’s down payment.

Homeowner Escrow Account

This type of account is created by the mortgage lender after the sale has closed and there is a new homeowner in place. A Homeowner Escrow Account is paid through the monthly mortgage payments made by the property owner to the lender, using a portion of the payment to pay for tax and insurance payments. If the property then gets sold again, the homeowner will often get refunded by the Escrow Service Company the funds in the escrow account within 30 days after the property has been sold.