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What is Escrow and How Does it Work  New Homes & Houses for Sale in Lockhart, Tx

 If you are purchasing a home, an escrow account is a crucial step to protect yourself with such a large purchase. But escrow can be a confusing term. In this article we try and make it easier to understand what escrow is and how it works. 

What is Escrow?

 An escrow account is a third-party account that holds funds to protect buyers and sellers of homes until the purchase has been made or conditions are met. When you see sales as pending this usually means the realtor in Lockhart is working on getting all the necessary things from both parties for the sale to be made and this time almost always includes putting different fees and costs associated with the sale of the home into an escrow account.

Types of Escrow 

Buying a home

 When purchasing a home the buyer is asked for earnest money (good faith money to show the buyer is interested). If the sale falls through, the seller will most likely get to keep the money. 

 As the sale moves forward, a down payment will be added to the earnest money. This money is kept in a third-party account, in escrow. This protects both parties’ financial interests as the sale proceeds. 

Mortgage escrow account

 A mortgage escrow account begins at closing and lasts the majority of the loan repayment. All property taxes and homeowner’s insurance are paid through this account. 

 The monthly mortgage that is paid by the homeowner contains the property tax and homeowners insurance so that it will be paid by the escrow company on time. 

Who Manages Escrow?

  • Escrow company 
  • Escrow agent 
  • Mortgage servicer 

Benefits of Escrow

 The biggest benefit of escrow is that it protects buyers, sellers, and lenders by bringing a third-party account to a property purchase or mortgage investment. No one can “walk off” with the money. 

Third-party Safety

 Leaving money with third-party hosts ensures that all agreed-upon requirements are met by the seller and buyer. 

 Also, if the purchasing doesn’t work out, everyone’s investment is safe and all funds are returned to the expected groups. 

Taxes and Insurance are Covered

 Taxes and insurance are taken care of through the monthly mortgage payment. This gives the lender peace of mind that taxes and insurance will always be kept up to date. No need for the homeowner to keep track of dates, payments, and budgeting for each item. It’s all taken care of in one monthly sum. 


 Escrow can feel overwhelming. Below is some helpful information to navigate buying a home. 

How Long Does it Take to Pay Off Escrow?

  • A real estate escrow is paid at the closing of the purchase. 
  • A mortgage escrow is paid throughout the duration of the mortgage loan. 

What Does it Mean to be in Escrow?

 When funds (earnest money, down payment, and closing costs) are applied to the escrow account, all agreed-upon terms by all parties must be met before funds can be released to the appropriate groups, providing a less stressful closing. 

Are there Negatives to an Escrow Account?

  • Higher mortgage payment to pay for escrow. 
  • The amount changes every year due to property assessments and making up the difference if the servicer was too low with last year’s monthly payments. 


 Purchasing a home is a huge life decision and must be met with confidence for the buyer. The escrow account ensures all parties involved are given the opportunity to have their agreements met, whether purchasing a home or paying each monthly mortgage. If you are reading this article because you have an interest in buying a home and want to learn more about that process, contact Lonestar Realty, we can help answer any questions as well as guide you in the right direction when it comes to finding your dream home. 

Realtor Selling New Houses for Sale in Lockhart

If you are looking for a realtor with access to exclusive listings in Lockhart, Lone Star is the Realty company for you. We update our listings constantly and have a team of experienced Realtors that are ready to help you find your dream home. Give us a call or visit our website!

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