The Lake Havasu real estate market appears to be slowing down a little. The days of multiple bids and single-digit days on market may be a thing of the past. Buyers love more inventory and less competition. Part of the home buying process includes opening up an escrow account once a seller accepts your offer. But do you know how this account works?
What is an Escrow Account?
In real estate, escrow is a legal arrangement wherein a third party holds funds and/or collateral until the final sale between a buyer and a seller of a property. Usually (but not always), this falls to the title company. Your Earnest Money Deposit, for example, goes into your escrow account. This protects both the buyer and seller from taking any money deposited there and running off with it. But there are two types of escrow accounts. The first is set in place during the sale. Then, after closing, homeowners usually transition into a homeowners’ escrow account.
During the Sale
As I stated above, this account is set up once the seller accepts your offer. Your earnest money goes here. If the sale falls through due to an issue with the buyer, the seller keeps this money. But if the sale falls through due to a failed contingency outlined in your sales agreement, your earnest money reverts back to you. Once the sale closes, this money goes towards your down payment. The Title Company (or mortgage servicer) takes care of all of this for you.
After the Sale
Upon closing, your lender opens up a new escrow account for you. Your monthly mortgage payment gets deposited into this account. From that account, the mortgage servicer pays the principal and interest on your mortgage. If you choose, you may also pay your property taxes and mortgage insurance through this account. Your lender calculates an estimate of how much this costs and adds it to your monthly mortgage payment. This proves helpful to many homeowners. Instead of struggling to find thousands of dollars for paying your property taxes and/or paying the mortgage insurance in a lump sum once a year, the total amount gets divided into 12 equal payments spread out over one year. That makes it a little easier to budget that way.