What does the term "escrow" refer to in the mortgage process?

The term "escrow" in the mortgage process specifically refers to a neutral third party that holds funds and documents related to a property transaction until the transaction is completed. This process ensures that both the buyer and seller fulfill their respective obligations before the property title is transferred and funds are disbursed.

For example, during a home purchase, the buyer deposits their earnest money into an escrow account. The escrow agent then safeguards these funds until all conditions of the sale are met, such as inspections, financing approvals, and the final closing procedures. By using an escrow arrangement, both parties can be assured that their interests are protected, as the release of funds and transfer of title will only occur when all contractual obligations have been satisfied.

This crucial role of safeguarding funds and ensuring a smooth transaction distinguishes escrow from other mortgage-related terms, making it essential for a successful real estate closing.