What Happens to an Escrow Account When a Home Sells?

If you're wondering what happens to an escrow account when your home sells, then congratulations are in order – you sold your house! Selling one house and buying another is a challenging process, with a lot of paperwork, a couple of mortgage loans and some often mysterious financial dealings. So the celebration can't really happen until the final details are completed.

Handling escrow money is one of those final complex details. You'll almost always have an escrow account on the mortgage you're settling, and you'll generally need one for your new loan. But those are different accounts, and they are handled differently.

Escrow accounts are set up to collect money with your monthly payments to be used to pay annual insurance premiums and real estate taxes. The monthly payment for each typically represents 1/12 of the respective annual bills, but you'll almost always have some money left in the account when you sell. How much will depend on the timing – if you sell right after those bills are paid, there may not be much in the account.

Your new mortgage will likely require an escrow account, but you can't transfer escrow accounts directly from one mortgage to another. You must close the escrow on the old loan and open a new account with new money on the new mortgage. Anything left in the old account, however, is your money.

You'll get a statement at the closing of your sale showing the balance in the escrow account. If it's short, you'll have to pay extra to cover any taxes or insurance between the last payment and the time you close and the buyer takes over those responsibilities. You'll have a balance in most cases, however, because most lenders keep a two-month "cushion" of extra escrow payments.

Don't make any immediate plans for that extra money, because you won't get your escrow balance immediately upon closing. That won't be finalized until your old mortgage is paid off and all bills are settled. That may take a couple of days or a few weeks, depending on the lenders involved and how quickly all tax, insurance and other bills can be paid. You should receive a check for your escrow balance when you get copies of the closing papers confirming the sale.