What Is the Deadline for All Mortgage Companies to Offer Escrow Accounts?

An escrow account is a type of trust account used during real estate transactions and for mortgages. An escrow account has a very simple job: it holds money on behalf of the buyer. For the lender, the escrow account offers a way to manage additional fees like property taxes and insurance that homeowners may not want to pay themselves. The lender uses the account to collect money from the borrower through monthly mortgage payments and takes care of the fees itself to avoid any legal problems.

Offering Escrow

A mortgage company does not need to offer an escrow account directly to the borrower. The mortgage contract will typically state if the company will use an escrow account and this is often the only warning that the lender will give concerning the process. The lender simply creates the escrow account and starts channeling funds. In this case, the mortgage contract dictates the use of an the escrow account, and the account will be in effect upon finalization of the mortgage. The deadline for a mortgage company to offer an escrow account is the final agreement regarding the mortgage between the borrower and lender.

Escrow Process

Escrow accounts also help escrow companies channel payments to the right parties during real estate transactions. For instance, a buyer may deposit all necessary purchasing funds in the escrow account and sign papers during a meeting with the escrow company. The company then holds these funds and only transfers them to the seller when the seller can come in and sign the papers as well. This creates a more flexible transaction process. The deadline to offer an account here is simply when the buyer comes in to sign the papers and pay, at which time this type of escrow account is usually necessary.

Escrow Account Fees

When a real estate transaction closes, the buyer pays a variety of fees lumped together as closing costs. These closing costs can amount to thousands of dollars, but they typically include fees for the escrow account and funds that the lender can use as a basis for the account. When the lender receives these fees, it must have an escrow account to put them in; the account must therefore be in effect at that time or shortly before.

Changing Loan Structures

Escrow accounts can change along with a loan. A borrower can typically decide to close an escrow account during the mortgage and personally deal with any fees. Lenders only require escrow accounts in certain circumstances. For instance, a lender may require an account if the down payment is less than 20 percent. If borrower has a modified loan, the lender may require an escrow account even if the borrower did not use one beforehand.

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