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An escrow account is a non-interest bearing account in which funds are held for the purpose of completing a transaction. In real estate there are two main types of escrow accounts.
1.) The first escrow account begins when you make a deposit on a house to show good faith of your intention to purchase property from the sellers. This deposit will go towards your down payment and closing costs at closing.
2.) The second escrow account is in reference to financing. The escrow account is specific to property taxes and home owners insurance. If you are required or choose to escrow your property taxes and home owners insurance, an escrow account will be created by the lender to hold these funds on a yearly basis.
- If your down payment is less than 20% of the purchase price, you will be required to escrow your property taxes and home owners insurance. You can also request to 'have escrows' if you intend to put 20% or more down.
- Escrow refund occurs in the event that you pay off the remaining principal balance of the loan. All funds held in the escrow account at the time of payoff will be refunded.
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