Defining what “escrow” is easy, but many people have never heard of this term before due them to being first time home buyers. This is something that you will hear numerous times during the process of purchasing a home. We would love to help you better understand what escrow is and how it is used.
Escrow is defined as “a financial instrument held by a third party on behalf of the other two parties in a transaction.” Sounds simple right? It is, but let me give you an example as to how it is used:
Let’s say you are interested in purchasing the perfect home. You are fully willing and able to make the purchase as long as your conditions are met (i.e. passing of an inspection, new roof placement, tile repair). In order to lock in that home and prove to the seller that you are financially able to buy it, you place an allotted amount of money into an escrow account held by a third party. This is basically just proving that you’re completely capable of making a payment. Once those conditions in place are met, the money that was placed in escrow is transferred to the seller and you will receive the title. Ta-da! You have bought your dream home!