What Is Mortgage Escrow? A Homebuyer’s Guide

Buying a home involves much more than finding the right property and getting approved for a mortgage. From the time your offer is accepted until you receive the keys, there are several important steps working behind the scenes to help move your purchase toward closing.

One term you may hear along the way is escrow. While it can sound complicated, escrow is simply a process designed to help keep funds, documents and important details organized and protected while the transaction is being completed.

Understanding how escrow works—and what may be expected of you—can help you feel more prepared as you move closer to homeownership.

What Is Escrow?

During a home purchase, escrow generally refers to a neutral third party or settlement process that helps coordinate the funds, documents and conditions required to complete the transaction.

Instead of the buyer and seller handling every detail directly with one another, the professionals involved in the closing process help make sure the necessary steps are completed before ownership of the property officially changes hands.

Depending on where you live and the specifics of your transaction, the exact escrow or settlement process may vary. Your BankFirst mortgage professional can help explain what to expect with your particular loan and closing.

What Happens During Escrow?

Once your offer is accepted, there is still plenty happening before closing day. Depending on the transaction, the escrow or settlement process may include:

• Holding earnest money or other deposit funds
• Coordinating required documents
• Working with the lender to satisfy closing conditions
• Confirming homeowners insurance
• Preparing documents for signing
• Coordinating the transfer of funds
• Making sure the transaction is ready to close

At the same time, your lender will continue working through the mortgage process, which may include the appraisal, underwriting and final loan approval.

With several pieces moving at once, staying organized and responding promptly can help keep everything on track.

How Can Homebuyers Prepare?

You don't have to be a mortgage expert to help your closing go smoothly. A little preparation and communication can make a big difference.

As you move toward closing, remember to:

• Provide requested documents promptly. Your mortgage team may need updated financial information or additional documentation during underwriting.
• Be prepared for required funds. Know what funds you may need for closing and follow instructions carefully regarding how and when those funds should be provided.
• Arrange homeowners insurance. Your lender will typically require proof of coverage before closing.
• Respond quickly to questions. A delayed response can sometimes delay other parts of the process.
• Review your Closing Disclosure carefully. This important document outlines the final details of your mortgage, including loan terms and closing costs.
• Stay in touch with your mortgage professional. If you have questions or something changes with your finances before closing, communicate with your lender.

Your BankFirst mortgage professional can help keep the financing side organized and guide you through what is needed as your closing date approaches.

Think of Escrow Like a Relay Race

Think of the closing process a little like the final stretch of a relay race. The buyer, seller, lender and closing professionals each have responsibilities to complete before the transaction can cross the finish line.

When everyone completes their part on time, the process can continue moving toward closing. If a document, approval or other requirement is delayed, it can affect the closing timeline.

The good news? You don't have to navigate it alone.

Experienced mortgage and real estate professionals can help you understand what is happening, what is needed from you and what comes next.

What About an Escrow Account After Closing?

Here's where the word escrow can get a little confusing: You may also hear it used after you purchase your home.

Some mortgages include an escrow account, which is different from the escrow or settlement process used to complete a home purchase. With a mortgage escrow account, a portion of your monthly mortgage payment is set aside to help pay certain property-related expenses, typically property taxes and homeowners insurance.

When those bills become due, the mortgage servicer uses the money collected in the escrow account to pay them on your behalf.

Whether an escrow account is required can depend on your loan and other factors. Your mortgage professional can explain how escrow will work with your specific mortgage.

Escrow Helps Bring the Deal Together

Escrow may be one of the less exciting parts of buying a home, but it plays an important role in getting you from an accepted offer to closing day.

By staying organized, responding promptly and working closely with your mortgage and real estate professionals, you can help avoid unnecessary delays and keep your home purchase moving forward.

At BankFirst, our mortgage team is here to help you understand the process from application to closing—and all the steps in between.

Ready to take the next step toward homeownership? Contact a BankFirst mortgage professional today to learn more about your mortgage options and get started.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.