Mortgage Definitions: What Is Escrow?

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There are a lot of terms that get thrown around during the mortgage process and things that you need to know.  We want to take some of these terms and demystify them, to make it easier for you to understand the terms and help you get a lower rate.  After all, that’s our main goal.  We want to get you the lowest possible rate on your mortgage at The Home Loan Expert, so let’s explain Escrow.

What Does Escrow Do?

Escrow is, at its heart, a place to set aside important documents and money (such as the buyer’s earnest money and the purchase agreement documents.  It’s an impartial 3rd party who has the best interests of both the buyer and seller in mind, and helps keep the entire process aboveboard.

They are there to ensure that throughout the process, no money is exchanged before the sale goes through.  Think of them as a buffer that keeps the seller and buyer honest.  That way, nobody absconds with earnest money or forges documents and the sale is going to be aboveboard.

They also hold all pertinent documents throughout the sale, and as the sale progresses, collect all fees and signatures to be held in their file for you.  As each step is completed, the escrow officer has paperwork filed to them.  Parts of the sale including home inspection, repairs, and other responsibilities of both the buyer and the seller are documented here.

Once the deal is completed and everything is set, the money is transferred to the seller and the escrow officer clears the title, meaning that the buyer owns the home.

Why is Escrow Important?

Escrow might seem like an unnecessary step in the home owning process, and something you can avoid.  That’s not true.  Escrow protects both parties from any unforeseen circumstance. If not for escrow, many home purchases would end up in court instead of with a successful sale.

An example to consider for the buyer: say your inspection shows that the foundation is cracked.  The seller then agrees to have this fixed before the sale.  Then, during your final walk through, you see that the foundation is still damaged.  Since you had escrow, the seller still hasn’t gotten any of your money.

If you’re a seller, this protects you from buyers backing out at the last minute.  Even if they walk, they’ve already paid out their earnest money – usually 1-2% of the purchase price – and it’s held in escrow.  You will still be able to collect that and move on to the next buyer if they back out for no good reason.

Escrow is a suit of armor protecting the integrity of the sale for both sides.

Get Started

Call The Home Loan Expert, Ryan Kelley and take advantage of lower mortgage rates to buy it and save money. Call us in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515 or Nashville at (615) 810-8555.  You can always apply online at, and we’re also open on Saturdays to better serve you. Don’t forget to follow @TheHomeLoanEx on Twitter for breaking mortgage news and knowledge.  Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?