In part one of this two-part blog series, we went over some basic details on escrow, or good-faith deposits made during many homebuying situations. Used to protect both the buyer and the seller from scams and other monetary risks as negotiations heat up, escrow also has purposes within mortgage and various home fee payments once a home has already been purchased.
At Altius Mortgage and our partners with Mortgage Ogden, we’re happy to spend time explaining various terms or factors of any of our mortgages or homebuying programs, whether you’re a first-time homebuyer or an experienced real estate flipper. In today’s part two, we’ll go over how escrow is managed and some factors to consider when determining whether you actually need to go with an escrow account during your home purchase.
How Escrow is Managed
As we noted in part one, escrow accounts are managed by a third party independent of both the buyer and seller. As we also went over, however, there are multiple types or uses of escrow accounts, and which you’re using may dictate who is managing the account. A couple possible management sources include:
- Escrow agents or companies: During primary escrow usage, when a buyer places funds in the escrow account as an earnest money deposit to the seller, the account will usually be managed by an escrow company or agent. This company may be the same as the title company in some cases, or may be different. In most such cases, this company is also responsible for the deed and other sale documents. Generally, the fee for this company or agent will be split 50-50 by the buyer and seller.
- Mortgage company: When you’ve purchased the home in question and have begun making mortgage payments, plus various insurance and tax payments, an escrow account will sometimes be used for these payments and managed by your mortgage company. This will usually be your lender, though not always. The company in question makes such payments directly from your escrow account.
Escrow Doesn’t Cover Everything
Now, it should be noted that escrow accounts don’t necessarily cover all fees or homeownership expenses. Utility bills, for example, are not included in escrow account contributions, and neither are homeowners’ association fees if applicable. Supplemental taxes will also not involve escrow.
Do You Need Escrow?
It’s important to note that escrow is not a firm requirement for a home purchase, in either form it’s used for. There are certain cases where escrow is required, or where you’ll need certain qualifications to opt out of one. There also may be situations where you can use an escrow account for certain expenses, then pay others on your own to save money. Your lender and loan officer will be happy to explain the important factors and whether you might benefit from an escrow account.
For more on escrow and good-faith deposits in a mortgage or homebuying situation, or to learn about any of our mortgage loans or services, speak to the staff at Altius Mortgage today.