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How Your Escrow Account Works

To most first time buyers and even many that have been there before, an escrow account is a mysterious beast. It can be hard to understand not only why it’s often required but how it really works.

We’ve all seen many attempts at providing clarity and plenty that fall short. Granted, it’s not a simple feat and just getting borrowers past the fact that money has to be paid out up front for a bill that might not be due for months can be a non-starter from the word go. The biggest challenge is in making the complexity simple or in the case of my stab at this situation, making it visual.

The following flyer actually uses the simple concept of blocks – each one representing one month’s escrow contribution to illustrate how you pay each month to build the balance up and then when the bills come due, the money (in blocks) is paid back out. Green coming in, red going out. The biggest bill brings the balance down to the that minimum two month reserve and of course, it further shows that you have to start with the right number of blocks to be sure that when that biggest bill comes due, there will be enough in the account to cover it. Lastly, the important point I always love to share to help drive the concept home, the fact that it’s always the borrower’s money and when they sell or refi, the balance is returned to them.

Feel free to use this if you think it will help you in your business. You can click on the image to download a PDF version. Print it, email it, share it and now, you’ll have something visual to back up your own escrow account explanation.

June 5, 2011 by · 2 Comments

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2 Responses to “How Your Escrow Account Works”
  1. Tony Croft says:

    Hey Brian, Great Post and thanks for the pdf!!!

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