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What Is The Importance of Escrow?

Updated: May 25, 2023

For first time homebuyers you may be wondering why a third party needs to hold your money in escrow. So for Talk Money Week we are sharing the importance of escrow and the significant part it plays in the home buying process.

man saving money change in jar

Escrow is both a legal arrangement and gesture of good faith between a mortgage lender, the borrower and the seller. Escrow helps to keep everyone protected during the home buying process.

Throughout the term of your mortgage, an escrow account is set up to hold funds for your taxes and homeowner’s insurance.

It is also used to protect your earnest money deposit so that the funds reach the right party according to the conditions of the sale. This deposit shows that you’re serious about purchasing the home. If the contract falls through due to the fault of the buyer, the seller usually gets to keep the money. If the home purchase is successful, the deposit will be applied to the buyer’s down payment.


You will want to use a neutral, third party like Willow Bend Title that is staffed with expert Escrow Officers that can handle the transactions on both ends and ensure that everything is handled smoothly and securely during the closing process.

Once you’re done with closing and start making mortgage payments, the extra money collected in each mortgage payment with be managed by your mortgage lender and used to pay for your property taxes and homeowners insurance.


Escrow fees cover costs like processing paperwork, distribution of funds to the appropriate parties involved, and the work the title company conducts during the closing itself. These fees are summed up in your closing costs and are generally paid for by the buyer and seller equally. However, sometimes this can be used for negotiation in the buying process, and the seller will cover the fees. On the opposite end, if it’s a seller’s market, the seller may negotiate with the buyer for the buyer to pay the fees.

To sum things up, escrow is there to protect your money, give you the ability to negotiate and insure that you pay your yearly property tax and homeowners insurance payments on time. While escrow can seem confusing at first, working with the right Escrow Officer who has experience and great communication skills will help bring you peace of mind during the home buying process.

Still have questions or need a reliable Escrow Officer to handle your closing? Contact Willow Bend Title today!


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