“Escrow” is a term used in the real estate industry to describe an important part of a homebuying transaction.
However, despite its regular usage, many potential buyers and sellers are unclear what exactly it means. Even those
experienced in real estate have questions about escrow and what it entails. 

By knowing the answers to these common questions, you’ll be better prepared for your foray into the real estate
world.

What is an escrow account?

An escrow account is essentially a separate account where funds are stored during a real estate transaction. The
account is managed by a neutral third party that facilitates the movement of money from buyer to seller during a
home purchase. 

What’s an escrow holder?

An escrow holder is the agent in charge of the escrow account. This agent is typically provided by your mortgage
lender, but you may also hire an escrow agent from another institution. As the escrow holder, the agent will manage
and distribute the funds once conditions of the purchase agreement are met. 

Is escrow mandatory?

Certain loans require using an escrow account. Conventional mortgages allow you to opt out of using escrow if you
make a down payment of 20% or more. VA loans require a high credit score and at least 10% down to skip using an
escrow account. 

Escrow protects both buyer and seller, but also the lender – it’s in their best interest to have the funds secured
during the process. 

Escrow is just one of the terms you’ll encounter in the real estate world. By understanding answers to common
questions, you’ll be better prepared for your next buying or selling journey.