“Escrow” is one of those terms you hear constantly in real estate but rarely get explained. Here’s a clear explanation of both major meanings.
Escrow #1: The Transaction Account
When a home goes under contract, an independent third party (the escrow company or title company) holds all funds and documents until all conditions of the transaction are met.
The escrow company:
- Holds your earnest money deposit
- Coordinates with all parties (buyer, seller, agents, lenders)
- Receives and verifies payoff demands (if seller has an existing mortgage)
- Holds the deed until funds are confirmed
- Disburses funds to all parties at closing
- Records the deed with the county
This protects both buyer and seller. Funds don’t transfer until the deed is clear and all conditions are satisfied.
How Long Is Escrow Open?
Standard escrow periods in California are 30–45 days. Some transactions close in 14 days (faster for cash buyers or highly prepared financed buyers). Complex transactions can take 60+ days.
Who Pays for Escrow?
Escrow fees are typically split 50/50 between buyer and seller in California, though this is negotiable. Fees typically run $2–$4 per thousand of purchase price plus a base fee.
Escrow #2: Your Monthly Tax and Insurance Impound
The second meaning of “escrow” relates to your monthly mortgage payment.
Most lenders require you to pay 1/12th of your annual property taxes and homeowners insurance with each monthly mortgage payment. The lender holds these funds in an “escrow account” and pays the bills when they’re due.
Why it matters: Your full monthly payment (PITI — Principal, Interest, Taxes, Insurance) is typically 20–35% higher than just the P+I mortgage payment that’s usually advertised.
Can you opt out? Typically only if your LTV is 80% or lower. With PMI requirements, the lender almost always requires escrow.