Escrow Fees: What They Cost And Who Pays Them
Andrew Dehan2-minute read
October 21, 2021
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.
When you close your loan, you’ll pay closing costs, which include escrow fees. Read on to learn more about escrow fees, what they include and how much you can expect to pay.
What Are Escrow Fees?
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 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.
How Can I Avoid Escrow Fees?
To avoid paying escrow fees, you’ll need to apply for an escrow waiver. You’ll need to check with your local laws and lender requirements to see if you qualify to apply in the first place.
If you plan to forfeit an escrow service, expect your lender to charge a small percentage of your loan as a waiver fee. That’s because the lender is now trusting that you’ll pay lump sum property taxes and homeowners insurance on their investment.
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.
Rocket Mortgage® is in the business of making homeownership simpler. Learn more about our escrow services, including a detailed analysis of your personal escrow account.
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