Can someone please explain to me exactly what escrow is in the simplest possible way? I can read definitions of it all day but for some reason its just not clicking in my brain.
Escrow - an agreement between two or more parties providing that certain instruments or property be placed with a third party for safekeeping, pending the fulfillment or performance of a specified act or condition.
Escrow generally refers to money held by a third-party on behalf of transacting parties
In short, a 3rd party hold funds for a specified transaction. So that buyer or seller cannot control it.
A Title company or escrow agent will hold monies between yourself and seller of a property.
Escrow payment is the common term referring, to the portion of a mortgage payment that is designated to pay for real property taxes and hazard insurance. It is an amount “over and above” the principal and interest portion of a mortgage payment. Since the escrow payment is used to pay taxes and insurance, it is referred to as “T&I”, while the mortgage payment consisting of principal and interest is called “P&I”. The sum total of all elements is then referred to as “PITI”, for “Principal, Interest, Tax, and Insurance”.
Some mortgage companies require customers to maintain an escrow account that pays the property taxes and hazard insurance. Others offer it as an option for customers. Some types of loans, most notably Federal Housing Administration (FHA) loans, require the lender to maintain an escrow account for the life of the loan.