Escrow can be confusing for first-time homebuyers. There usually is an escrow amount to pay some taxes and insurance when you close on a mortgage. Your mortgage lender sets up an escrow account with money from your loan amount to later be used to pay tax and insurance bills. Your escrow is said to be pending until there is a close of escrow. The deal to buy a home is final when escrow is closed.
Agent Handles Escrow
An escrow agent handles escrow. This is a neutral third party who acts as a go-between for the buyer and his lender and the seller, handling the money and paying the bills. An escrow agent collects an escrow amount to pay taxes and insurance between the time of closing or settlement of the loan and the next annual bills. The agent also may be the repository for monthly escrow amounts.
Closing the Loan
A mortgage or home loan is closed when buyer and seller sign various disclosures and documents are signed but that does not close escrow. Buyers typically have a three-day "rescission" period in which they are allowed to back out of a deal so escrow won't be closed until after that.
Escrow is pending from that closing or settlement date until the final payment is made to the seller and the deed to the house is recorded. There are several steps in between. After the closing, the escrow agent will deliver the signed note and other documents to the lender for approval to close escrow.
Once the lender has reviewed and approved the signed closing documents, it will fund the loan. That is, it will send the agreed amount to the escrow agent to be delivered to the seller. After the escrow agent transfers money to the seller, the deed will be recorded and escrow will be closed.