What is Escrow? Understanding the Escrow Process

Scouting for your dream home is one of the most exciting things to do in a home buying process. But don’t forget that closing on a home is nothing near like shopping for your favorite hat, bringing it to the counter, paying for it at the cashier, and then using it in a matter of minutes.  Even before you start the closing process, you may already encounter a lot of requirements like depositing earnest money in Escrow.

As a first-time homebuyer, you might be wondering what Escrow is and whether it’s highly necessary when purchasing a home. In this article, we help you understand the role of Escrow in your home-buying journey and what you need to prepare for it. 

What is Escrow?

Escrow is basically the process by which an independent/third party agent mediates a real estate transaction by temporarily storing deposits, earnest money and putting on hold the property until all the obligations of the deal (specifically the purchase and sale agreement) are met.

It is different from an Escrow account where the mortgage lender stores your home insurance money, tax allocation, and other funds taken from your monthly amortization. Once a deal is closed, your first Escrow will also close, and your lender will open another Escrow account on your behalf. 

Moreover, the Escrow process only happens if the seller requires a huge amount of earnest money or deposit up front. We stress this because some property sellers/developers are open to a staggered system of payment to complete the deposit. In this case, you won’t have to prepare that much amount of cash yet.

what is escrow?
Source: New Ventures Escrow (California-based)

If you’re working with a real estate agent or broker to buy your home, you won’t have to worry too much about this process because the agent will facilitate it for you. They will be the ones to connect you with an Escrow company and handle all communications with them. The only thing you need to do is be ready with your deposit.

What is the Purpose of Escrow?

A real estate deal is an expensive transaction. You are talking about thousands of dollars that surely came from your own sweat and tears. With this, as a buyer, you’d want to be sure that you are not tricked or conned every step of the way and in every agreement you make with the seller.

Likewise, for the seller, Escrow is essential to ensure that you (the buyer) will not run away that easy after so much waiting, negotiations, and making sure your concessions are met. The earnest money you deposit in Escrow won’t usually be returned if you violate any of the terms in the purchase and sale agreement or if you withdraw your intent to buy. 

The Escrow company serves as an unbiased party that ensures both you and the seller will work and move forward according to the terms of the contract.  There’s just no other way around apart from getting an independent party, not unless the seller is someone you know closely and fully trust, perhaps (then again, this still isn’t advisable).

For your amortization Escrow account, let’s recall that your monthly amortization doesn’t only include your principal loan amount and monthly interest. Rather, it also includes mortgage insurance, homeowner’s insurance, property tax, and more. This account ensures that you have ready money by the time the fees are due.  Since the lender handles this Escrow account, they also have the responsibility to pay the dues like your annual property tax.

Pros and Cons of Having Escrow

Don’t get us wrong, though. An amortization Escrow is not implemented by all lenders. There are lenders that accept borrowers without an Escrow account. Likewise, there are lenders that have Escrow requirements but also allow Escrow waivers at the same time. Before you decide which lender to go with, here’s a comparison between the advantages and disadvantages of having an Escrow account.


  • Agreeing to Escrow increases your chances of getting your loan approved
  • You don’t have to remember to save for taxes and insurance
  • You don’t have to remember due dates because the lender is in charge of paying it on time and in full.
  • You won’t have to pay penalties for missed tax and insurance payments


  • It doesn’t cover possible increases in tax and insurance
  • If taxes go down, you won’t receive a cashback; only rebates and lower monthly payments
  • It will take a long time to release your extra deposits in Escrow

How Does Escrow Work?

The Escrow process starts after you and the seller have signed the sale and purchase agreement and ends after closing or once the property’s title has been transferred to your name.  In effect, the duration of the Escrow process will depend on how fast the home is officially sold.

Your agent and the seller’s agent will facilitate the opening of the Escrow, and once you’ve submitted the requirements, you can now deposit the amount agreed upon. Depending on your agreement, you can get back your Escrow money once the deal is closed, or in some cases, the amount is credited as part of your downpayment. 

If you want someone who can guide you clearly through the Escrow process when buying your home, get in touch with us at HomeSold GA. Our family has been in the Georgia real estate industry for more than a decade, and we can absolutely make your home buying journey an experience you’ll certainly enjoy.

Call us at 770-668-4888 or send us a message through the form below.

Connect With Us!

If you're looking to buy or sell a property connect with us today!

How Can We Help You?

We would love to hear from you! Please fill out this form and we will get in touch with you shortly.
    (check all that apply)
  • This field is for validation purposes and should be left unchanged.

Leave a Reply

Your email address will not be published. Required fields are marked *