How Does Escrow Play into Getting a New Home Loan?

by Kelly Richardson
LoanPage.com Columnist

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You will most likely hear the term escrow several times during the process of obtaining a new home loan. The word escrow stands for many different things throughout the mortgage process. Here is a straightforward explanation of exactly what escrow means for you.

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The process of obtaining a new mortgage for your home is one of those stressful times that requires a great deal of patience. With all of the confusing home loan terminology, it is easy to get confused. Take escrow for example. Many new home loan hopefuls never hear of the word escrow until they first try to get a mortgage. And because the term escrow stands for different things at different times during the home loan process, it helps to know just a little bit about how escrow really works.

New Home Loan: What is Escrow?

  • » Earnest Money. The first place you will here about escrow is in the form of good faith deposits you will make on your new home.
  • » Loan Escrow. Another example of escrow is when you set aside part of your mortgage payment for insurance and property taxes.
  • » Escrow Cushion. Escrow cushions are the extra amounts of escrow you pay on a new home loan for unexpected rises in insurance.

Another good idea is to have a list of questions you will ask your mortgage lender about your escrow before you sign anything. These are the questions that should be answered so that you understand exactly what your escrow payments are being used for and how they are being handled.

New Mortgage: Questions about Escrow

  • » What if my lender doesn't pay my taxes on time? New home loan lenders will pay them on time if the mortgage payment is received timely.
  • » What if my lender doesn't pay my hazard insurance? Again, these payments should be made if the mortgage was paid on time.
  • » What if I'm required to pay too much in escrow? Your mortgage lender should not require more than 1/6th of the mortgage in escrow.

A little bit of knowledge about home escrow will go a long way when applying for a new home loan.

About the Author
Kelly Richardson covers the local education and technology scenes in major cities across the country. His articles appear in a variety of respected educational journals, periodicals, and e-zines. Kelly holds a bachelor degree in English and master degree in education from Georgia State University.

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