You learn a lot of new terms when you buy a house. One of those terms is “escrow,” and you’ll run into it twice: Once when you pay a deposit on the home you want to buy and again when you work with your lender.
We really like how Money magazine defines escrow as a “holding tank.” During the home purchase process, Foote Title Group, as your title company, holds your deposit and other monies in that holding tank until closing day, when we will distribute them to the appropriate parties.
Your lender also keeps a holding tank – or escrow account – for you. Your monthly mortgage payment does more than pay your principle an interest; a portion of that payment is set aside to pay taxes and insurance.
Why? As Zillow explains, your lender wants to make sure these important bills are paid. Because they’ve loaned you the money for your home, they have a vested interest in avoiding a lien on your property from unpaid taxes or a lapse in insurance coverage.
Not every lender uses the term “escrow,” Zillow says. You might also hear it called “impound” or “reserves.” If that’s the case, don’t worry. It’s the same kind of holding tank for your money.