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Escrow Fees: What They Cost And Who Pays Them

Andrew Dehan3-minute read

January 13, 2023

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There’s a lot of work that goes into purchasing or refinancing a home, from filing paperwork and processing the loan to recording the deed and exchanging funds. To make sure it all gets done and gets done right, several parties work diligently behind the scenes – and their services aren’t free.

There’s a lot to learn when you’re preparing to buy a home. While you’re in the process, it can be hard to find the time to think about all the new things being thrown your way. But as you repay your mortgage, you’ll encounter a lot of real estate terms, such as escrow and escrow fees.

Whether you’re buying your first home or your seventh, it’s important to be educated on basic mortgage terms so you can feel more prepared and less intimidated when you apply for a loan. With that in mind, read on to learn more about 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.

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.

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After You Close

After closing and throughout the life of the loan, your lender may continue to collect money to fund your escrow account, which 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 each year based on whether an annual analysis finds an escrow shortage or surplus.

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. Here are a few common escrow fees you can expect:

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 around $2,000 – $4,000. The escrow officer may also charge a flat fee for its 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 is 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 is in the business of making homeownership simpler.  It offers you the choice between making an annual or monthly payment. Learn more about 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? Apply online today and get ready to start looking for a new home.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

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Andrew Dehan

Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.