For many people, buying a home is one of the largest purchases in their lives. However, to ensure the payment is processed properly, your title company or lender might require the money to be placed in escrow. This term can be a little confusing for new buyers, as it can be used to describe a few different situations. Here's what you should know about the escrow process to ensure you have the right information to navigate real estate transactions successfully. 

How Does Escrow Work?

The escrow process serves two distinct purposes when buying a home. Escrow accounts are established at the beginning of the process to hold your good-faith deposit, which is money you put down to show that you're genuinely interested in the property. A third party, often the title company, manages this account and ensures the money is available to add to your down payment once the closing process begins. After closing, this account is closed. 

However, other types of escrow accounts remain open for the duration of your mortgage. These accounts are usually managed by your loan provider and contain money for property taxes and home insurance. Because amounts owed can fluctuate over time, your lender may require you to place at least two months' worth of payments to cover costs. If there's too much money in the account, the lender will issue you a refund. 

What Benefits Does It Offer?

The primary goal of escrow is to protect the buyer if there's an issue with the real estate transaction. For example, if you find a troubling issue during a home inspection and decide not to go through with the sale according to the terms of the contract, an escrow account ensures you get your good-faith deposit back. These accounts also benefit sellers if the buyer walks away from the transaction without recourse. 

For accounts that hold property taxes and home insurance, escrow can make budgeting a lot easier. Your lender will request monthly payments, which prevents you from paying taxes and premiums in one lump sum. Because the lender will make sure all payments are remitted on time, you never need to worry about missed or late payments. 

Chattanooga Title proudly supports first-time home buyers using their extensive skills and knowledge. This title company offers the benefit of more than three decades of experience, which means they can deal with even the most complex real estate issues. Along with escrow services, they also perform comprehensive title searches and issue title insurance to protect homeowners. Schedule an appointment at their Chattanooga, TN, office today by calling (423) 756-3057. You can also visit the website to learn more about their services.