What Does The Word 'Escrow' Mean?

During a real estate transaction, people in the business will throw around the word “escrow” without realizing that it causes confusion for many everyday consumers. The reason being is that the word can have different meanings (or reference different things) within the transaction depending on the context in which it is used.

One way the word escrow is used is within the context of the “escrow period”.  The escrow period is the period of time in between the signing of the sale contract and the closing day.  (Escrow periods can be any number of days – sometimes as short as 3 days or as long as 90 days or more).  The escrow period is when things like home inspections, title searches, appraisals, and the lender’s underwriting takes place.  A synonymous term for when a house is “in escrow” is when a house is “under contract”.  They mean the same thing.  (In Houston it’s more common to hear realtors say the house is “under contract”.) 

The other situation you’ll most often hear the word “escrow’ is when the lender escrows property taxes and homeowner’s insurance with the monthly mortgage payment.  All this really means is that the lender collects money for taxes and insurance with the borrowers’ mortgage, and they put this money aside for the borrower into what is called an escrow account. (When the tax and insurance bills come due, the lender will arrange payment on behalf of the borrower using the funds in the escrow account.)

It’s easy to see how the word escrow can confuse the everyday consumer.  It’s a word that’s not often heard in everyday conversation, and within a real estate transaction it has a few different meanings.