Escrow is one of those strange words you often hear in real estate and mortgage dealings. At the basic level, escrow means that a third-party holds money; the money is released when a certain condition is met.
One way that escrow is used is when earnest money is put into escrow. To show that you are serious about wanting to buy a house or property, you may pay earnest money. This money is put into escrow until the sale is made.
The sale is the condition that triggers the release of the money. The earnest money is released to the property seller as part of the payment for the sale.
If you are buying a house by making mortgage payments, you may have an escrow account with the bank or whoever is your lender. In this case, you pay extra money along with your loan payment. Sometimes the account is called and “impound account”.
This escrow account will hold money that is being saved up to pay for property taxes or homeowners insurance when they come due. The escrow money is released to the county for taxes or to the insurance company for payments.
Once a year, your lender will do an analysis of the escrow account to make sure that a correct amount is being collected each money. This way you are not saving up too much or too little money for the tax or insurance payments.
Unfortunately, the money held in escrow generally does not earn interest income for the home buyer. Only a few states require that interest on escrow money be paid and Nebraska is not one of them. States that do require interest on escrow are: Alaska, California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont, and Wisconsin.*
If you have more questions about how escrow works, contact the NAS Realty team: Barb Malm at 308-991-7020, Janet Boehler at 308-991-3024, or Kelly Morten at 308-991-2332.