What does the term “escrow” typically refer to in the loan process?

The term "escrow" typically refers to a third-party account used for holding funds in the loan process. In real estate transactions, escrow serves as a neutral holding service where money, such as the buyer's earnest money deposit, is kept until closing. This process ensures that all parties involved—such as the buyer, seller, and lender—are protected during the transaction. The escrow account helps manage the funds safely and ensures that the funds are only released once all terms of the sale are met, such as the completion of inspections or the fulfillment of financing conditions.

This system provides security and trust in financial transactions, preventing any party from misusing the funds. In addition to holding initial deposits, escrow accounts may also be used to collect and manage property taxes and homeowners insurance premiums as part of monthly mortgage payments, which can be a common practice in the loan process.