OfflineWhen you put money in escrow it is held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. The agent's role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.
When it's used
If you've ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you're doing something similar by opening an escrow account.
How it works
When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner's insurance. You'll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.
Its purpose
The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you've neglected to pay the insurance, the lender would be left with no collateral.
How you benefit
Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.
Escrow payments
Your escrow account will have a built-in cushion -- if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.
When escrow may be waived
In most states, the money you place in an escrow account earns no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some will raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before your mortgage closes.
Anita
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"FAILURE IS NOT AN OPTION"
For posting this as a sticky. I am sure it will come in handy to a lot of people.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
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just a side note - read all info regarding escrow account before depositing your money in it. They are hard to get out of once you do.
Anita
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I'VE MADE MY MIND UP , TO START OFF BY LOCATING A BUYER(S). SO, IF I COULD GET ANY SUGGESTIONS, I'D REALLY APPRECIATE THEM. I'M IN THE PHOENIX AREA,I'M A REMODELING CONTRACTOR RECENTLY RELOCATED HERE TO BETTER MY BAD CREDIT SITUATION BY REHABBING PROPERTY I FIGURED TO FIND DISTRESSED REHABABLE PROPERTY SITUATIONS. THAT I WOULD IN RETURN,LOCK UP A DEAL to ASSIGN-REHAB-& SALE.SO, IF ANYONE KNOWS OF ANY INVESTORS 'GIVE ME A HOLLER, WILL YA'..
Hi James
I read your post and I think it great that you are doing your thing. But I am going to make a suggestion to you. A very smart guy on this site posted in the forums last week a post called "INVESTORS NOT WANTED"
In it he spelled out what true investor or money lenders look for in investors and partners. A solid deal/plan. I wanted to paste the link here but my computer is running slow. If you are interested in reading it this is how you can get to it.
In the upper left corner there is a search box. type in investors not wanted and it should pop up for you. If you cannot find it send me a message or post ere and I will do my best to get the link for you.
I wish you much success.
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
http://www.deangraziosi.com/node/1062
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
susie here is the post you requested. I tried to send it via PM but it would not go
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
anitarny I cannot find the post INVESTORS NOT WANTED. Could you please locate it for me. I tried the search box, but I could not locate it.
Bossman
Escrow times such as 30-45-60 90 days etc. can be requested by the buyer at time of making offer
Anita
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TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Now, it seems as though when the property is secured under contract the investor/buyer takes the contract alongwith any earnest $$$ to the escrow agent to start the process???? I am correct or did I miss a step??? Pls explain the process in much more "simpler" details... Thanks so much....Shalom~~
Hello: I have been pre-approved for a mortgage, and I have a Proof of Funds Letter. Is the Proof of Funds letter used only to show I have money in my Bank Account? Does the Seller get this money for their Down Payment at closing? Or, is the Proof of Funds Letter used only to show I have Down Payment funds available. Is the actual downpayment fee calculated into the mortgage agreement and paid with my monthly mortgage payments, because they know I have Proof of Funds in my Bank Account.
I am a little confused about this, please make it clear for me.
the POF letter is used to show the sell that you have the financial abilty and funds to purchase the property
Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
the POF letter is used to show the sell that you have the financial abilty and funds to purchase the property
Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
the POF letter is used to show the sell that you have the financial abilty and funds to purchase the property
Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
I have another question for you how can you find if a property is FHA approve.
I have contacted different title companies in my area, and they charge a substantial fee for escrow. I also looked in to some banks and one of them required a tax id number. Does any company provide escrow services without fees.
This really helps clarify the purpose of an escrow account for me! :)I'm glad it was stickied too, otherwise this thread would be a needle in a haystack going 2 years back!
Nelson
Thanks for the info. It's super helpful.
Hi Anita,
I live in Germany and am trying to profit from this knowledge and learning the ropes in the US before I can apply the techniques in Germany or the UK.
I was recommended a title or escrow manager to ensure manage my funds with people I bird dog with or anyone else I work with.
What is the difference, is this in your opinion the right route?, who can you recommend?
Thanks
Daniel
The Brit in Germany
Is escrow money required to provide when buying or selling a property with cash and no mortgage? and what is owner financing?
Thank you for posting this feed. Even though it is older, it has lot of good information for someone that doesn't know how escrow money works. Thanks
Mikessler
I always say Keep Moving Forward! Never Give Up On Your Dreams!
As Matt Larsen says "Feed the Need" - Edge 2013
Follow my daily investing journal and read about the deals I've done and am working on at:
http://www.deangraziosi.com/real-estate-forums/investing-journals/117493...
Escrow: What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. The California Escrow Law : Section 17003 of the Financial Code : provides the legal definition.
Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
Escrow : How Does it Work?
The principals to the escrow : buyer, seller, lender, borrower : cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.
The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same : the Closing or Settlement Statement.
Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.eiofc