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LOL!: Yes, Of Course I Totally Know What Escrow Is

 
 

McSweeney’s author Andrew Humphries has a hilarious piece on being a new homebuyer pretending to know what’s happening at closing. Here’s a taste, a quick rundown of what escrow means, and a link to the full LOL piece:

Mortgage, approved by the notary—check. Routing number copied precisely correct to avoid financial ruin—check. Homestead filed—check. Automatic escrow—I almost certainly did that during the busy home-buying process and just don’t remember it right this second—check.

For what it’s worth, escrow is when there’s a third party collecting and distributing money for other parties.

There are 2 uses of the term ‘escrow’ during home buying and ownership.

First, when you’re a buyer and a seller accepts your offer, you’ll hear the term “opening escrow.”

This means that a third-party escrow company will be the one to hold your initial deposit, and will eventually collect your lender’s funds and distribute them to the seller.

The third-party is critical because it protects you so you’re not giving money directly to seller before you close.

Second, when you close a home purchase you can choose (or some loans require) setting aside money monthly to cover your property taxes (due twice per year in most states) and homeowner’s insurance (usually due once per year).

Your lender collects these property tax and insurance fees from you as additional line items on your mortgage statement on top of your mortgage payment.

They hold it in an escrow (also called an impound) account, and pay your taxes twice per year and insurance once per year.

There’s no charge for this, it’s just a formalized savings plan for property taxes and insurance.

Hit me with questions, and read that post for a few laughs.

Also read this post for the latest on homebuyer affordability.

McSweeney’s has a hilarious piece by a new homebuyer pretending to know what’s going on at closing

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Yes, Of Course I Know What Escrow Is

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Comments [ 2 ]
  1. Chris says:

    Who collects the interest from the escrow account holdings? With MMF yielding 5%, it’s not trivial.

    1. Great question, and agree. On mortgage lender/servicer escrow (aka impound) accounts for taxes/insurance, there’s no federal law requiring lender/servicers pay interest, and even in the 13 states that do require interest gets paid on escrow accounts, the lender/servicer’s other regulations/exceptions can prevent/exempt them from paying interest on these accounts. So, yes, people often choose to pay taxes/insurance directly instead of via an escrow account. But some loans require tax/insurance escrows, and for those that do, you just have to confirm with your lender if they pay interest. And if you want to get into the weeds, here’s a current Supreme Court dispute involving BofA on this topic, and it describes how state escrow and federal banking rules bump into each other — this gets at the complexity of interest payments on escrows (yes it should be straightforward, but it it never is). Hope that helps, and thanks for commenting.

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