Who is Escrow, and Why am I Sending them a Check?

Who is Escrow, and Why am I Sending them a Check?

home is probably the biggest purchase you will ever make, so it’s no wonder the process has so many ins and outs! If you’re a first-time home buyer or even a real estate veteran, it can all seem very convoluted. There are appraisals, closing costs, mortgage rates, titles, and so much more to understand. And of course, there’s escrow.

The word escrow comes from the Old French word escroue, a scrap of paper or a scroll of parchment representing the deed that a third party held until a transaction was completed.

Are you shopping for a Vail area home? Here’s what you need to know about the two types of escrow accounts and how they work!

Escrow for a home purchase

When you’re purchasing a home, the seller will request what is known as a “good faith deposit” or “earnest money.” This is a mutually agreed upon amount – usually, 1 to 3 percent of the home’s purchase price – to demonstrate you are committed to buying the property. In Colorado, it is not unusual for buyers and sellers to split escrow costs.

To protect you and the seller, the earnest money goes into an escrow account until the transaction is complete. If the sale falls through on your end, the seller keeps the deposit. If it is successful, the money will go towards your down payment.

After you’ve opened escrow, the seller or their agent will ask you to sign a preliminary title report, title vesting information, and Homeowners Association (HOA) documents if the property is covered by one. You’ve probably heard “the property is in escrow.” That refers to the time between the offer and the closing, which typically lasts around 30 days.

The Colorado real estate market is extremely competitive. According to the Colorado Association of Realtors, the second half of 2020 and 2021 set records for area real estate, with historic buyer demand. Even though sales declined by 25% in the first quarter of 2022, prices were still strong and are expected to continue to increase overall.

So how can you stand out in the tough Colorado market? Increase your earnest money deposit from the standard 1 to 3 percent to 10 to 20 percent to show the buyer you mean business.

Escrow for property taxes and homeowners’ insurance

Escrow is also used like a savings account that your mortgage company or an escrow company manages. The escrow account manager withholds a portion of your mortgage each month to pay your real estate tax, homeowners’ insurance, and mortgage insurance. That monthly payment is usually calculated by adding your most recent tax and insurance payments and dividing that sum by 12.

If your escrow balance is too low to cover the costs, you will need to pay it back, either in full or over the next year.

Cedar Home Loans – Experts in the Vail market

As a local lender, Cedar Home Loans has extensive experience in Colorado markets. This knowledge allows us to provide customized loan services and create the perfect home solution for you!  Contact us for a consultation and we’ll give you a comprehensive overview of the real estate purchasing process in Colorado area. In addition to home buying assistance, Cedar Home Loans provides:

  • Mortgage refinancing for loan terms that better fit your needs
  • Loan solutions beyond the traditional 30-year fixed rate mortgage<
  • Mortgage rates are among the most competitive in the state

Get ready to enjoy Colorado living!

About the Author:

Andrew McBryan

Andrew McBryan is the owner and founder of Cedar Home Loans LLC, where he brings over 27 years of experience in the mortgage industry to his role. Andrew has successfully expanded the company across Colorado, including offices in Telluride, Vail, Summit County, and Boulder. His dedication to providing innovative mortgage solutions and his commitment to staying informed on the latest industry trends make him a trusted advisor to clients and referral partners alike.

When not focused on his business, Andrew enjoys the unique sport of burro racing and relishes the time spent skiing in Colorado’s beautiful terrain. Above all, Andrew is a devoted father, finding joy and inspiration in his daughter’s growth and happiness. 

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