Escrow

Escrow

Escrow refers to a financial arrangement in which documents you sign or deposits you make related to your mortgage are held by a third-party escrow agent. These items are released from escrow only when specific conditions are met. Money held in escrow is typically designated for purposes such as property taxes, earnest money deposits, hazard insurance, and similar costs.

For loans insured by the FHA, an escrow account is required. In the case of conventional loans, whether an escrow account is established is at the discretion of the lender. In addition to collecting monthly mortgage and interest payments, lenders may also gather funds for property taxes and homeowner’s insurance. These amounts are stored in the escrow account and are paid when the respective bills are due. By federal law, mortgage holders are required to send an annual statement to borrowers detailing the activity of their escrow account.

There is also a separate escrow account set up during the negotiation phase of a home purchase. In this case, all funds and documents are held by an escrow officer, who is usually a representative of the title company, until the closing date. It is the escrow officer’s responsibility to ensure that all money and paperwork held in escrow are properly disbursed to the respective parties, whether buyer or seller, at the time of closing.

Amortization

An amortized loan is repaid with regular payments of principal and interest. A schedule shows how each payment splits between the two over time.

Debt Ratio

Measures how much debt you have compared to your total assets. A lower debt ratio improves your chances of qualifying for a mortgage.

Mortgage Closing

The mortgage closing is the final step in buying a home. It’s when the property title transfers to you, and funds are exchanged with the seller.

Loan Balance

Your loan balance is the amount you still owe on the original mortgage. Part of your monthly payments goes towards reducing this balance.

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