Using Escrow Accounts When Buying a House in Washington

March 14, 2023
Last updated:
March 14, 2023
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When researching the home buying process here in Washington, you will probably encounter the term “escrow account.” Or maybe you’ve heard of this term already, but you aren’t sure exactly what it means.

In either case, this article is for you. Today, we will talk about escrow accounts and how they are used when buying a house in Washington. This is an important concept to understand, because it relates to your down payment, closing costs and other purchase-related expenses.

Two Types of Escrow Accounts Used in Washington

There can actually be two different escrow accounts associated with a home purchase and mortgage loan. The first one is used during the home buying process and includes the earnest money deposit, down payment and closing costs.

The other type of escrow account is used for property taxes and insurance, and typically managed by your mortgage loan servicer. After closing, your servicer will take a portion of your monthly payment and hold it in an escrow account until your tax and insurance payments are due.

But for the rest of this article, we will focus on the escrow account that is used during the home buying process. This is the one that will include things like the earnest money deposit and down payment, which is used to facilitate the closing process.

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The Escrow Process for Home Buyers

Within a home buying context, an escrow account is basically a special type of account that’s used to hold and manage various funds associated with a purchase.

There are companies that specialize in managing these types of accounts, and they are naturally referred to as escrow companies. The individual person who handles your account is usually referred to as the escrow agent.

In the state of Washington, escrow companies act as a neutral third-party to handle the exchange of funds and documents between the buyer, seller, and other involved parties. They may also record the transaction with the appropriate government agencies and provide final closing statements to all parties involved.

You might think of the escrow account as a kind of temporary “holding container” for funds relating to the purchase of a home. The home buyer puts money into this account, and it gets held there until certain conditions are met. When those conditions are satisfied, the agent will release the funds to the appropriate parties.

So, what kinds of “funds” go into the escrow account? Good question! While the process can vary from one home buying scenario to the next, it’s basically the same across the board. The escrow account can include the buyer’s down payment, closing costs, and other fees.

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Five Things Buyers Need to Know

Many home buyers in Washington are confused by the escrow process, and how it leads up to the final closing. And that’s only natural. It can be a complex subject for first-time home buyers who have never navigated the process before. There are multiple parties involved and many different “moving parts.” So don’t worry if you’re not entirely clear on the subject.

We’ve explained the basic concept of an escrow account already. Now, let’s explore some of the things home buyers need to know about these counts, when buying a house in the state of Washington.

  • As mentioned above, an escrow account is a special type of account set up to hold funds related to the home buying process, and managed by a third party.
  • Escrow accounts are typically used for holding the down payment and closing costs.
  • These accounts are used to ensure that all parties involved in the real estate transaction have access to the funds they need to complete the transaction, when the time comes to finalize the sale.
  • An escrow agent will manage the account on your behalf. Their job is to ensure that all the necessary funds are in place, and that all of the conditions of the transaction are met prior to releasing those funds.
  • As a home buyer, you will probably pay a fee associated with the creation and management of the escrow account. Such fees are typically rolled into the home buyer’s closing costs. The exact amount will depend on the purchase price of the house and other factors.
  • Using an escrow account can offer certain advantages. For one thing, it helps to ensure that all funds are available when needed, while providing a neutral third party to manage the transaction. It can also make things easier for you, as the home buyer.
  • Escrow companies can also help keep the closing process on track, so that you can close on time. They do this by ensuring all funds are in place prior to closing, and by processing all of the related paperwork.

Note: This article explains how the escrow process works when buying a home in the state of Washington. This process can vary slightly from one transaction to the next, so portions of this article might not apply to your particular situation.

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