What is escrow in a home purchase?

Escrow is a neutral third-party account that holds funds or documents until all conditions of the transaction are met.

Escrow is an arrangement in which a neutral third party holds money or documents until the conditions of a transaction are satisfied. In a home purchase, the buyer's earnest-money deposit and closing funds are held in escrow until closing, protecting both sides. After the sale, many lenders keep an escrow account for the life of the loan: a portion of each monthly payment is deposited there, and the lender pays property taxes and insurance from it when due. The Consumer Financial Protection Bureau's Ask CFPB glossary covers the mechanics, including when lenders may require escrow and how yearly escrow analyses work.