Congratulations! You’re under contract on your first, or maybe, fifth home. You now have to submit the deposit to the escrow agent (hopefully, you have chosen correctly and secured Djebelli Torres PLLC as the title company). If this is not your first home, you should know where the deposit is going to go. However, if this is your first home purchase, you may not be aware.
So let’s start the discussion.
What is an escrow agent?
An escrow agent safeguards money or assets and enforces escrow agreements in financial transactions, particularly those involving real estate. An escrow agent has a fiduciary duty to both parties involved in the transaction and can only act in accordance with the terms of the agreement.
What is an escrow account?
In real estate, escrow is typically used for two reasons:
a. To protect the buyer’s good faith deposit so the money goes to the right party according to the conditions of the sale
b. To hold a homeowner’s funds for taxes and insurance
Because of the different purposes it serves, there are two types of escrow accounts. One is used during the home buying process, while the other is used throughout the life of your loan.
What is an escrow account for a real estate transaction?
When you’re buying a home, your purchase agreement will usually include a good faith deposit (also known as earnest money).This deposit shows that you’re serious about purchasing the home. If the contract falls through due to the fault of the buyer, the seller usually gets to keep the money. If the home purchase is successful, the deposit will be applied to the buyer’s down payment.
To protect both the buyer and the seller, an escrow account will be set up to hold the deposit. The good faith deposit will sit in the escrow account until the transaction closes. The cash is then applied to the down payment.
Sometimes, funds are held in escrow past the completion of the sale of the home. This is called an escrow holdback. There are many reasons an escrow holdback may be needed. Perhaps you agreed that the seller can stay in the home an extra month. Or maybe you found something wrong with the property during the final walk-through.
If you’re building a new home, money may remain in escrow until you’ve signed off on all the work. Once the conditions are met, the money will be released to the right party.
When it comes to real estate transactions, there can be a great deal of money being passed from one party to another. To help avoid risk and ensure all responsibilities of the sale are met, the escrow agent keeps the money safe through the process, working in a neutral position, in the interest of both the buyer and seller.
So do not fret, your deposit will be safe.