What Is an Escrow Account?

An escrow account is a financial arrangement where a neutral third party holds funds or assets on behalf of two parties involved in a transaction until specific conditions are met. In the context of home buying, escrow accounts serve two primary purposes:

1. During the Home Purchase Process: An escrow account holds the buyer's earnest money deposit, ensuring that funds are securely held until the transaction is completed or terminated.
2. For Ongoing Homeownership Expenses: After purchasing a home, lenders often establish an escrow account to manage and disburse payments for property taxes and homeowners insurance. This ensures that these critical expenses are paid on time, protecting both the homeowner and the lender from potential defaults or lapses in coverage.

Buying a home is more than finding the perfect property. It’s a multistep journey that can take several months to a year, depending on your situation. From the moment you begin prepping your finances to the day you get the keys, each step requires time, patience and thought.

Typically, homebuyers spend four to six months navigating the full process. This includes financial preparation, mortgage preapproval, house hunting, submitting offers, underwriting and finally closing. Even once your offer is accepted, it typically takes 30 - 45 days to close the deal.

What Is Home Equity?

Home equity is the portion of your home’s value that you truly own. It's calculated by subtracting the amount you still owe on your mortgage from the current market value of your home. For example, if your home is worth $400,000 and you owe $250,000, you have $150,000 in home equity. This equity grows as you pay down your mortgage or as your property appreciates in value. It’s a valuable financial asset you can tap into, particularly when you’re ready to buy your next home.

Why Interest Rates Matter

Interest rates are the financial lever behind every home loan. While listing prices grab attention, your mortgage rate is a critical factor in determining how much you’ll actually pay each month and over the life of the loan. Even a modest change in interest rates can cost or save you tens of thousands of dollars. That’s why understanding how rates work is critical to understanding your eventual monthly mortgage payment.

Keeping a close eye on rate trends means you can better time your purchase, lock in a favorable rate and maximize your long-term financial position. Whether you’re buying your first home or refinancing, the interest rate will shape your entire housing budget.