Process

Escrow

Escrow has two meanings in a home purchase. Before closing, it's a neutral account that holds your earnest money and documents. After closing, an escrow account is where your lender collects part of your payment each month to pay property taxes and insurance for you when they come due.

During the purchase, escrow is a neutral third party that holds your earnest money and key documents until everyone meets the terms of the contract. It keeps the deal fair, since neither side controls the money while things are being finalized.

After you close, your monthly escrow account spreads big yearly bills like property taxes and homeowners insurance into smaller monthly amounts. Your lender collects them with your payment and pays the bills when they’re due. Once a year they review the account, and your payment may adjust up or down if taxes or insurance change.

Related terms

Closing Costs

Closing costs are the fees you pay to finalize your home purchase, on top of your down payment. They include lender fees, title and escrow charges, an appraisal, and prepaid items like taxes and insurance. Closing costs commonly run roughly 2% to 5% of the purchase price, though it varies by location and loan.

Earnest Money

Earnest money is a good-faith deposit you put down when your offer is accepted, showing the seller you're serious. It's usually held in escrow and applied toward your down payment or closing costs at closing. If the deal falls through for a reason your contract protects, you can often get it back.

Amortization

Amortization is how your loan gets paid off over time through regular payments. Early on, more of each payment goes to interest and less to principal. As the years pass, that flips, and more goes toward the balance. By the end of the term, the loan is fully paid off.

Last updated: June 5, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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