Escrow in a home purchase works like this: a neutral third party holds the buyer’s money and the transaction’s documents in a locked account, and releases nothing until every condition in the purchase contract has been met. For a typical financed purchase, the process runs about 30 to 45 days from the accepted offer to the day the deed is recorded. Neither the seller gets paid nor the buyer gets the keys until the escrow agent confirms both sides have done what they promised.
The Neutral Third Party Holding the Money
Three people sit at the center of every escrow: the buyer, who puts money in; the seller, who receives proceeds at the end; and the escrow agent, who manages the account and the paperwork. The agent is a fiduciary bound to both sides equally. They cannot advise the buyer, cannot advocate for the seller, and cannot decide on their own how to release funds. They follow the written instructions both parties signed, and if a dispute breaks out, they freeze everything and tell the parties to talk to lawyers.
That strict neutrality is the point. You don’t have to trust the person on the other side of the table because you both trust the agent to follow the rules.
What Opens Escrow
Escrow opens once the purchase agreement is signed by both parties and delivered to the escrow agent. The agent needs a legal description of the property, usually taken from the existing deed or a preliminary title report, and contact information for everyone involved, including the lender and the real estate agents.
The buyer’s first payment into the account is the earnest money deposit, a good-faith payment showing the buyer is serious. It usually runs 1 to 5 percent of the purchase price, and the exact amount is negotiable.1My Home by Freddie Mac. What Is Earnest Money and How Does It Work? That deposit sits in the escrow account for the length of the transaction and gets credited toward the down payment or closing costs at the end. If the deal collapses for a reason a contingency covers, the buyer generally gets it back. If the buyer walks away after all the contingencies are gone, the seller typically keeps it.
The 30 to 45 Day Timeline
A standard financed purchase moves through a predictable sequence. Cash deals can be much shorter, and complications can push things longer, but the shape is consistent.
In the first week, the purchase contract is signed, escrow is opened, and the earnest money hits the account. Over the next two to three weeks, the buyer schedules the home inspection, a pest inspection if warranted, and any other evaluations. The lender orders the appraisal. The seller delivers property disclosures. The mortgage application moves through underwriting.
In the last two weeks, the buyer lines up homeowners insurance, the title company finishes its search to confirm the seller can convey clear title, and the lender sends final loan documents to the escrow agent. In the final days before closing, the buyer does a walk-through and wires the remaining down payment and closing costs into escrow. On closing day, both parties sign, the deed is recorded, and the agent disburses funds.
Any of these steps can slip. Lender processing, inspection findings, appraisal problems, or a request for an extension can move the closing date. A financing contingency deadline usually falls about a week before the scheduled closing.
Contingencies and Their Deadlines
Shortly after escrow opens, the agent prepares formal escrow instructions that supplement the purchase agreement. Both sides sign them. The instructions spell out the inspection timeline, the conditions that must be met before closing, and who pays which costs.
The conditions that give the buyer the right to back out are the contingencies. Each has a deadline, and each disappears once that deadline passes without the buyer using it.
- Inspection contingency: a set number of days to have the home professionally inspected and to negotiate repairs or a price reduction if problems turn up.
- Financing contingency: protects the buyer if the mortgage application is denied, letting them cancel without losing earnest money.
- Appraisal contingency: lets the buyer renegotiate or walk away if the property appraises below the purchase price, since most lenders won’t finance more than appraised value.
- Title contingency: protects the buyer if the title search turns up liens, boundary disputes, or other ownership problems the seller can’t resolve.
Once a contingency period expires, the buyer generally can’t use that issue as a reason to cancel without putting the earnest money at risk.
The Disclosures the Lender Must Send
Two federal disclosures show up in every financed purchase. The first is the Loan Estimate, which the lender must deliver within three business days of receiving the buyer’s mortgage application. It shows the projected interest rate, monthly payment, closing costs, and other loan terms in a standard format so the buyer can compare lenders.2Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosures
The second is the Closing Disclosure, which replaced the older HUD-1 settlement statement for most mortgage transactions in October 2015.3Consumer Financial Protection Bureau. What Is a HUD-1 Settlement Statement? The lender must ensure the buyer receives it at least three business days before closing.4eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions It’s the final line-by-line accounting of the transaction: loan terms, projected monthly payments, every closing cost, and the cash the buyer needs to bring. If significant numbers change after it goes out, the lender may have to issue a corrected version and restart the three-day waiting period, which pushes closing back.
Closing Day and How the Money Moves
Once every contingency is cleared and the three-day Closing Disclosure window has passed, the transaction closes. The buyer wires the remaining down payment and closing costs to the escrow account. The funds sit in a secure trust account until the agent confirms every condition is satisfied.
On closing day, both parties sign. The escrow agent records the deed at the county recorder’s office, which is the official public notice that ownership has transferred. The agent then disburses the sale proceeds to the seller, minus any outstanding mortgage balance, commissions, and fees, and gives both parties a copy of the final Closing Disclosure as a receipt.
When the seller actually gets paid depends on the state. In “wet” closing states, the seller receives funds the same day the documents are signed. In “dry” closing states, the loan doesn’t fund until paperwork is completed and approved after signing, which can add a few days before the seller sees the money. Ask your escrow agent which rule applies where you’re closing.
Protecting the Wire
Wire fraud aimed at real estate closings is one of the fastest-growing financial crimes in the country. In 2024, the FBI’s Internet Crime Complaint Center reported over $173 million in losses from real estate-related fraud, much of it driven by criminals who hack email accounts and send fake wiring instructions that route closing funds into their own accounts.5Federal Bureau of Investigation. 2024 IC3 Annual Report Once the money lands in a fraudulent account, getting it back is very difficult.
Before you send a wire, do the following:
- Verify wiring instructions by phone using a number you already have on file for the escrow or title company, never a number pulled from the email carrying the instructions.
- Treat any last-minute change to wiring instructions as suspect. Legitimate escrow and title companies do not surprise you with new account numbers by email.
- Call the escrow agent right after sending the wire, using a trusted number, to confirm the funds arrived in the correct account.
- Watch for slight misspellings in a sender’s email address, urgent language pushing you to act fast, and any request to send funds to an individual rather than a business.
A few extra minutes on the phone is worth it.
If the Deal Falls Through
If the transaction is canceled before closing, the escrow agent can’t just hand the money back to whoever asks. Both the buyer and the seller have to sign a mutual cancellation agreement laying out who gets the earnest money and how any escrow fees are split. Most escrow companies use their own cancellation form on top of the contract cancellation.
If the buyer canceled inside a valid contingency period, such as after a bad inspection or a denied loan, the earnest money generally goes back to the buyer. If the buyer walked for a reason no contingency covered, the seller typically has a claim to the deposit. Either way, the agent won’t release the money to one side over the other’s objection. If the parties can’t agree, the funds sit in escrow until a court sorts it out. Fees already earned by inspectors, appraisers, and title companies are still owed under the contracts that hired them, whether the sale closes or not.
The Other Escrow Account: After You Close
The word “escrow” gets used again after closing, for something different. Many mortgage servicers set up an ongoing escrow account, sometimes called an impound account, to collect and pay the borrower’s property taxes and homeowners insurance. Each month, the servicer collects roughly one-twelfth of the annual tax bill and insurance premium along with the regular mortgage payment, and pays those bills directly when they come due.6Office of the Law Revision Counsel. 12 USC 2609 – Limitation on Requirement of Advance Deposits in Escrow Accounts
Federal law caps how much extra the servicer can hold. Under the Real Estate Settlement Procedures Act, the servicer may keep a cushion of no more than one-sixth of the estimated annual escrow payments, roughly two months of reserves.7Consumer Financial Protection Bureau. Section 1024.17 – Escrow Accounts The servicer must send an annual statement showing every deposit and disbursement. Borrowers with conventional loans and enough equity can sometimes request a waiver and pay taxes and insurance on their own, though lender policies vary.