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If you're a first-time homebuyer, the term escrow might be a bit confusing. The fact is, however, it is easily understandable. And if you're planning to find the financing you need for your Coconut Grove real estate home, the term escrow becomes more significant. So to increase your real estate knowledge, here are some common facts about this term.

Escrow and escrow account

Imagine you placed a bet, not an immediate one, but something that will be defined in the immediate future, probably a day or two, and you and another person needs to put some money down. You need another person to hold the money. In real estate, that third person is the escrow agent who will hold the escrow account. When you have a mortgage but still arent finished with yourCoconut Grove real estate purchase, your money will be kept by a neutral third party.

Use of the money

Once you get approved for the mortgage for your Coconut Grove real estate purchase, your lender will require you to open an escrow account that you have to put money on every month. The money will be used to cover your homeowners insurance as well as property taxes. The escrow agent will then release the money from the account when the premiums for your taxes and insurance come due.

The escrow account is important to guarantee the lender that you're going to pay your insurance and tax on time.

Benefit of having an escrow account

Even though escrow is typically required by your lender, you can still benefit from it. One of the most prominent benefits of having an escrow account is the ability to spread your annual tax and insurance payments over 12 easily manageable ones. This will certainly take the load off your monthly payments and prevents you from defaulting.

But even if you miss a payment, your lender will still be able to pay your accounts on time. This perk, however, is only valid for two months. So before your financial situation causes a rift between you and your lender, you must provide a reason for your missed payment.

Options

You can still waive having an escrow account if you want. Since escrow accounts dont earn any interest you can choose to skip it entirely but only if your lender agrees. One way to make your lender agree on this is to pay more than 20 percent down payment on the mortgage you need for your Coconut Grove real estate. There are also other lenders that will opt for an interest rate-increase as compensation for the absence of the escrow account.

Mark Michael Ferrer
Coconut Grove real estate

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