Opening Escrow

• The purchase of almost all real estate involves transferring a large sum of money from one party to another. Because of the large sums involved, an account is usually set up by a third party who will hold the money until the transaction is completed. This process is known as escrow. After a buyer's offer on a property is accepted, the buyer and seller can begin the escrow process through a mortgage company or bank. This usually involves depositing enough money in the escrow account to cover principal, interest, tax, and insurance, or PITI.
  
  

Closing Escrow

• After all of the funds needed for closing escrow have been placed in the escrow account, the buyer and seller can meet and transfer ownership. After this is done, the money from the escrow account is transferred to other accounts to pay for the PITI and assorted fees associated with getting the mortgage and buying the property. The exact amount will vary from state to state and from transaction to transaction, but will almost never be less than a few thousand dollars.
  
  

From Escrow to Mortgage Payments

• The timing of escrow is key to calculating the timing of mortgage payments. Almost all mortgage companies in the United States set due dates for mortgages on the 1st of the month, so if the escrow closes after the 1st, the first mortgage payment will be on the 1st of the month after next. This is because you pay for your mortgage at the end of the term. So, for example, if a buyer closes escrow on April 8th, the first mortgage payment will be due on June 1st, which will be for the lending period beginning on May 1st and ending May 31st.
  
  

Interest Payments for Mid-Month Escrow Closings

• Because the mortgage company is technically lending the amount of the mortgage on the day of closing escrow, home buyers will need to pay for the interest on that loan for every day before the first mortgage payment. For example, if a buyer is taking out a $100,000 mortgage at 4 percent interest, the buyer will need to pay $10.96 per day for every day between the closing of escrow and the end of the month. To get this figure, just multiply the amount of the mortgage by the percent interest, and divide by 365. So, if the buyer in this example closes on April 8th, $252.08 will be due in interest for the remaining 23 days of April, including the day of escrow closing.