Escrow fees: What they cost and who pays them

An escrow fee is one of the many costs you’ll encounter on your path to homeownership or even when you're refinancing a home. Escrow fees are paid to an escrow or title company to hold funds when you close on your home.

There’s a lot to learn when you’re preparing to buy a home. Whether you’re buying your first home or your seventh, knowing the mortgage basics and how they affect your bottom line will help your confidence during the mortgage process.

We’ll break down escrow fees, what they include and how much you can expect to pay.

What are escrow fees?

You’ll begin hearing about escrow and escrow fees as soon as your offer is accepted. Let’s examine the role of escrow fees and accounts both before you buy and over the life of your mortgage.

Before you buy

Escrow fees are a portion of the closing costs that come with buying a home. These costs are paid directly to an escrow company, real estate attorney or title company to conduct the closing and distribute funds to the third parties involved in the real estate transaction. Escrow fees can cover paperwork, distribution of funds and other fees related to the real estate transaction.

After you close

After closing and throughout the life of the loan, your lender may continue to collect money to fund your escrow account. This escrow account is used to pay your annual property taxes and homeowners insurance bills.

These fees are typically rolled into your monthly payment and may increase or decrease yearly based on whether an annual analysis finds an escrow shortage or surplus. There's no fee associated with the maintenance of the account.

Understanding escrow costs

Escrow costs are charged by third parties involved in a real estate transaction. An escrow account holds this money until the escrow agent, attorney or title company distributes the funds to the specific parties. You may sometimes hear this period referred to colloquially as the escrow process or “being in escrow.” Here are a few common escrow fees you can expect:

• Real estate attorney fees and commissions
  
  
• Mortgage origination fees owed to the lender
  
  
• Property taxes and other county fees owed to the local government
  
  
• Profits the seller gains from the transaction
  
  
• Homeowners insurance premiums
  
  
• Title insurance premiums

How much do escrow fees typically cost?

The average cost of an escrow fee is 1% – 2% of the purchase price of the home. That means if you’re looking at a home with a sales price of $200,000, the escrow fees may cost $2,000 – $4,000. The escrow officer may also charge a flat fee for the escrow company’s services. That said, the true cost of escrow fees will depend on the escrow company you use and the location of the home.

Who pays for escrow fees?

The buyer and seller often negotiate who pays escrow fees via their real estate agents. There’s no industry standard, though the simplest solution is to split escrow fees between the buyer and seller. Otherwise, negotiations can lead to escrow services being paid entirely by the buyer or paid by the seller as seller concessions.

Does Rocket Mortgage offer escrow services?

Rocket Mortgage^® offers escrow services over the life of your home loan. Since Rocket Mortgage is in the business of making homeownership simpler, you have the choice between making an annual payment or a monthly payment. Learn more about what to expect from our escrow services.

The bottom line: Escrow is mutually beneficial but not free

Escrow fees are paid to an escrow company, a title company or a real estate attorney and kept securely in an escrow fund until they’re ready to be paid. These fees pay for third-party services that help you sell your home or complete the tasks required to successfully close your loan.

Ready to start taking your first steps toward homeownership? Start the application process conveniently online and be ready to start looking for a new home.