What Home Buyers Should Know About Escrow

Two people accepting a key for their home from a real estate agent

If you're buying a home, you'll likely hear the word escrow more than once. Escrow is a financial setup where a neutral third party holds money or property for people involved in a transaction. The funds or documents are only released when certain agreed-upon conditions are met. It may sound complicated, but it plays a key role in making sure your home purchase goes smoothly and safely. In most cases, escrow is required if you're using a mortgage, and while there may be some fees involved, they’re usually included in your closing costs and help protect both you and the seller during the process.

How Does Escrow Work?

Here’s a basic breakdown of what happens during the escrow process:

  • When a buyer and seller agree on a home sale, the buyer puts down a deposit (called earnest money) into an escrow account.
  • A neutral third party, usually an escrow company or attorney, holds this money while both sides take care of things like inspections and appraisal, securing financing and completing paperwork.
  • Once everything is in place, the escrow agent releases the money to the seller and the property to the buyer. This protects both sides and helps make sure the sale follows the agreement.

Why is Escrow Important for Buyers and Sellers?

Escrow does more than just hold money. It helps keep the home buying process fair, secure and on track by making sure all parts of the deal are handled properly. Here's why it's such an important part of the transaction:

  • Protection for Both Parties

Escrow holds the buyer’s earnest money safely until all agreed-upon steps are completed. This shows the buyer is serious while protecting them in case something goes wrong.

  • Timeline Matters

Escrow follows a specific timeline. Delays in inspections, repairs or paperwork can push back the closing. Staying on top of tasks helps keep things moving.

  • Contingencies Must Be Met

The buyer may have certain conditions, like passing a home inspection or getting a mortgage. These must be resolved before escrow can close.

  • Funds Are Secure

The escrow agent manages money in a secure, regulated account. This avoids risks and ensures no one handles large sums directly.

  • Closing Happens Through Escrow

When everything is complete, the escrow agent takes care of transferring money to the seller, recording the new ownership and giving the buyer the keys. This makes the final step of buying a home official and organized.

How We Help

While the North Carolina Housing Finance Agency doesn’t handle escrow directly, we’re here to support you in your home buying journey. We help by connecting you with knowledgeable professionals like our preferred lenders and providing affordable financing options that make the process possible. Buying a home is a big milestone, and understanding escrow can give you the confidence to navigate the process with ease. 

Home is for everyone.