If you’re in the process of buying a manufactured home, you’ve likely heard the term escrow—but what does it mean, and why is it important? Escrow is a critical part of the home-buying process that helps protect both buyers and sellers, ensuring a smooth transaction.
In this guide, we’ll break down what escrow is, how it works, and how it impacts your manufactured home loan.
What Is Escrow?
Escrow is a financial arrangement where a neutral third party holds funds or documents on behalf of a buyer and seller until specific conditions are met. In the context of home buying, escrow helps ensure that money is only exchanged when both parties have fulfilled their contractual obligations.
There are two key stages where escrow is used in the home-buying process:
- During the Purchase Process – When buying a home, the buyer deposits earnest money (a good-faith deposit) into an escrow account. This money remains there until all conditions of the sale are met, ensuring both parties follow through on their agreements.
- For Property Taxes & Insurance – After purchasing a home, many lenders require an escrow account to collect and pay property taxes and homeowner’s insurance. This ensures these costs are covered on time without financial strain on the homeowner.
How Does Escrow Work?
Step 1: Opening an Escrow Account
Once your purchase agreement is finalized, an escrow account is opened with a third-party escrow company. The buyer typically deposits earnest money into this account, which signals commitment to the purchase.
Step 2: Meeting Loan & Contract Conditions
The escrow agent holds funds and documents while loan approvals, home inspections, appraisals, and other required steps take place. If any conditions aren’t met (e.g., the home doesn’t pass inspection), the transaction can be renegotiated or canceled.
Step 3: Closing the Sale
Once all requirements are met, the escrow agent distributes funds to the seller, pays any closing costs, and transfers the property title to the buyer. At this point, the home officially belongs to you!
Step 4: Managing an Escrow Account for Taxes & Insurance
After closing, if your lender requires it, a portion of your monthly mortgage payment will go into an escrow account to cover property taxes and homeowners insurance. The lender then pays these expenses on your behalf when they’re due.
Why Do Lenders Require Escrow Accounts?
Many lenders require an escrow account for taxes and insurance to:
✔ Ensure property taxes are paid on time to avoid legal issues.
✔ Guarantee homeowners insurance remains active to protect their investment.
✔ Prevent large, unexpected expenses for the homeowner by spreading costs over monthly payments.
If escrow is required, your lender will calculate your monthly escrow payment and add it to your mortgage.
Can You Waive Escrow?
Some lenders allow you to waive escrow if you make a large down payment (typically 20% or more) and have a strong credit history. However, this means you’ll be responsible for managing and paying property taxes and insurance directly, which can require careful budgeting.
Escrow and Manufactured Home Loans
For manufactured homes, escrow works similarly to traditional real estate transactions. However, additional factors may come into play, such as:
- Whether the home is on leased or owned land (escrow may need to account for land lease agreements).
- The type of financing (chattel loans for homes not on permanent foundations may have different escrow requirements).
- Title and ownership verification (especially if purchasing a pre-owned manufactured home).
At Horizon Homes, we help simplify the financing process by working with lenders who understand manufactured home loans.
Have Questions About Escrow
If you’re considering a manufactured home and need guidance on escrow, Horizon Homes is here to help! We work with trusted lenders to find the best financing options for your needs. Contact us today to learn more about your loan options and the escrow process!