What escrow means for real estate in NYC | Brian Scott Cohen

Do you have questions about using an escrow account for real estate? Brian Scott Cohen, a top mortgage lender in New York City, has answers.

You may have heard the word escrow before but may not know exactly what it means. I am going to give you a brief overview of escrow accounts as it relates to homebuying and mortgages.

Here’s one fictional scenario: John, a homebuyer, visits an open house that is in his budget and decides that he wants to make an offer on a house. The house will require a few inspections. John makes an offer to the seller and his offer is accepted with a few conditions.

At this point, John decides to make a 1.5% deposit in good faith in an escrow account – the account held by a third party to show that he is serious about purchasing. A quick note here, the average good faith deposit is usually 1% to 3% of the property’s purchase price.

In this scenario, the seller will have more of an incentive to proceed with home inspections knowing that John made a good faith deposit. After the inspections are successfully completed and all parties are satisfied with the reports, the monies in escrow can be transferred to the seller.

I promise, it’s not as complicated as it sounds. The bottom line is escrow accounts are meant to protect all parties during a real estate transaction.

One more point here. Escrow can also be an account that is created at the time of a mortgage closing which includes future homeowners’ insurance and property tax payments. Some portion of the monthly mortgage payment would be deposited into the escrow account to cover the payments.

Borrowers who create an escrow account, per the lender or at their own discretion will likely have higher payments than those who do not. One benefit here is they will not have to think about paying the annual premiums or property taxes because they’re already paying portions of them monthly into their escrow accounts.

In short, my recommendation is to have a conversation with your loan officer and real estate agent to further discuss escrow accounts.

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Equal Housing Lender, Brian Scott Cohen NMLS ID: 410025; OriginPoint LLC fka Guaranteed Rate Affinity, LLC (“OriginPoint”) NMLS 1598647; For licensing information visit nmlsconsumeraccess.org. Operating in the state of New York as OriginPoint LLC fka GR Affinity, LLC. Operating in the state of California as OriginPoint Lending LLC fka Guaranteed Rate Affinity, LLC.

Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. OriginPoint does not guarantee or assume liability for the accuracy, completeness or timeliness of the information. You should conduct additional research before making any mortgage related decisions.

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