Whether you are buying or you are selling a property in both the conditions you always go through an escrow period. This part of the process involves the establishment of a lender account, as they do not trust you.
It is not so that escrow is a process that is used only in real transactions. It is also used in business transactions to create a safety zone for any transfer, most often for business secrets or intellectual property. Escrow is used to make a centralized, impartial company or agent that can collect documents as specified in transaction documents in the real estate. This is simply known as escrow, and is not a lender account.
A lender account is a bank account. It is to be dealt by a buyer as it is tied to any home loan on a property. A lender does not really trust you even if he is giving you a home loan for hundreds of thousands of dollars. As a result it demands for a bank account to be established, which is under its control. The lender uses the bank account to make sure for the payments certain bills are paid, debts that might otherwise cause the lender problems if they are not paid. These liabilities and debt include homeowners insurance, private mortgage insurance, and real estate taxes such as property taxes. The lender will specify the particular cost that is to be covered in the loan documents.
Every month the borrower is required to make the necessary deposits to the bank account. The lender takes the said money and pays the relevant liabilities and debts related to the real estate. Depending on the loan and the lender, the borrower may be required to keep a cushion in account. A cushion out here refers to a minimum balance. The cushion is required to make sure there is money in the account to clear the bills if the borrower fails to make the monthly payments.
A lender account is good from the perspective of the lender. Buyers need to make sure they understand the payments required as a large cushion requirement could seriously impact a buyer’s cash flow.
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