Understanding Escrow When Buying or Selling a Massachusetts Home

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When Buying or Selling Real Estate in Massachusetts, Escrow is Crucial

Author Bill Gassett owns Maximum Real Estate Exposure.

When you purchase a home for the first time, you'll likely learn some things you weren't aware of. One of those items is escrow.

Escrow is a vital concept whether you are buying or selling a house in Massachusetts.

For buyers, it's where their earnest money deposit will be put until the conclusion of the closing. For sellers, it is feeling confident there is security that if the buyer breaks the contract, there will be consequences.

When entering into a real estate transaction, knowing what escrow is and how it works is essential. Let's examine what you should know.

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What is Escrow in Real Estate?

Escrow is a system of protection and security used when two or more parties enter a real estate transaction.

It often involves using a neutral third party, an escrow company, that holds funds or documents on behalf of the buyer and seller.

The escrow company acts as a trusted, impartial intermediary that follows the instructions of both parties and ensures the transaction is carried out properly. This includes collecting all necessary documents and payments, ensuring that the buyer and seller fulfill their obligations of the contract, and ensuring that all applicable laws are followed.

A real estate brokerage also holds escrow monies for a buyer during a real estate transaction.

When a buyer purchases a property, the earnest money will be placed in escrow. The escrow company will then verify that all the purchase contract requirements have been met, such as inspections, appraisals, and loan documents.

Once those conditions are met, the escrow company will disburse the funds to the seller, and the buyer will receive the title to the property.

In summary, escrow is a safe and secure system of protection and security used in Massachusetts real estate transactions. It ensures that the buyer and seller fulfill their obligations and that the transaction is handled properly.

What Are Escrows For a Mortgage Company?

The other common form of escrow in real estate is that mortgage lenders require. Borrowers are often asked to have their property taxes and insurance payments in escrow upfront.

The borrower will set aside monthly funds to cover their property taxes, homeowner’s insurance, and other related expenses.

The lender holds the escrow account, and funds from the borrower’s monthly mortgage payment are deposited. This money is then used to pay taxes and insurance when they become due.

The escrow account acts as a safety measure for the lender. It ensures that borrowers keep up with their taxes and insurance payments and protects the lender from potential losses from defaulting on these items.

The amount of money placed into the escrow account is determined by the lender and usually equals one-twelfth of the estimated taxes and insurance costs. This amount can change depending on the actual taxes and insurance costs each year.

An escrow account benefits the borrower, making budgeting for taxes and insurance payments easier. It also protects the borrower from potential late fees or other penalties that could be incurred if taxes or insurance payments are not made on time.

Your Mortgage Type Can Impact Escrow

The mortgage you are taking out will influence the escrow eligibility criteria. A conventional loan provides the chance to avoid escrow requirements for insurance and real estate taxes.

If you obtain a VA loan, your credit score must be excellent, and you'll need 10% down. In absence of such an arrangement, it is highly improbable that the escrow account requirement will be waived.

You must have an escrow account if you obtain your mortgage through the FHA loan. This is a norm for any buyer using this loan program.

Some lenders only require escrows for certain expenses like property taxes. Perhaps they only require an account for these costs as well.

What Are The Costs Associated With Having an Escrow Account?

Depending on your specific needs and preferences, you may be required to pay a fee for using an escrow service.

Additionally, additional fees may be associated with opening or maintaining an account. It’s important to research the costs associated with each option before deciding.

The fees are typically not a substantial amount of money.

Final Thoughts on Escrow in Real Estate

Escrow monies are an essential part of most real estate transactions. Whether buying or selling, it's essential to understand how these accounts become the glue for making a sale work.

Did you enjoy this advice on escrow when buying or selling a home in Massachusetts? See other real estate articles on NewsBreak for more timely tips and advice. Bill often writes about general real estate, mortgages, finance, moving, and home improvement.

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Bill Gassett is an avid writer for numerous real estate topics including finance, mortgages, moving, home improvement, and general real estate. His work has been featured on numerous prestigious real estate publications.

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