Understanding Escrow and How It Works in Indiana Real Estate

Published On: May 18, 2025|Categories: Real Estate|

When you’re buying or selling a home in Jasper, Evansville, or anywhere else in Dubois County, you’ll likely encounter the term escrow. And if you’re like most people, you might not be exactly sure what it means. Escrow plays a key role in keeping your transaction safe and organized—but it can feel a little mysterious if no one explains it.

This guide explains the following:

What escrow means in a real estate transaction
How escrow works during the buying and selling process
What an escrow account is (and how it helps after closing)
What’s included in your monthly escrow payment
Why escrow protects both buyers and sellers

Here’s a closer look at each.

What Escrow Means in a Real Estate Transaction

In simple terms, escrow is a legal arrangement where a neutral third party holds money and documents on behalf of the buyer and seller until certain conditions are met.

In Indiana real estate transactions, escrow ensures that:

The buyer’s earnest money is securely held
The funds for closing are safely transferred
All required documents are completed and exchanged properly

Think of it as a temporary holding zone. The escrow officer (usually part of a title company or attorney’s office) makes sure that everything is done correctly and that no money changes hands until both parties fulfill their obligations.

How Escrow Works During the Buying and Selling Process

Once the seller accepts the buyer’s offer, the transaction enters escrow. Here’s what happens next:

The buyer submits earnest money to the escrow holder
The title company runs a title search to make sure there are no legal issues with the property
The buyer works on securing financing with their lender
Both parties complete inspections and negotiate repairs, if needed
The escrow officer collects required documents and finalizes closing paperwork
The buyer wires closing funds and signs the loan documents
The seller signs the deed and transfer paperwork
The title company records the transaction with the county and distributes funds to the seller

At that point, the home officially belongs to the buyer, and escrow is closed.

In Indiana, escrow is usually handled by a title company, which manages the funds, documents, and closing logistics. Your REALTOR® will recommend a trusted local title company based on where you’re buying—whether that’s in Huntingburg, Ferdinand, or a rural part of the county.

What an Escrow Account Is (And How It Helps After Closing)

Once you’ve closed on your home, you may continue to hear the word escrow in relation to your mortgage. That’s because many lenders set up a mortgage escrow account for you.

This account is used to collect and pay:

Property taxes
Homeowners insurance premiums

Each month, your mortgage payment will include a portion for these costs. Your lender holds that money in escrow and pays the bills on your behalf when they come due.

This helps you avoid large, lump-sum payments and ensures your taxes and insurance are always paid on time.

What’s Included in Your Monthly Escrow Payment

Your monthly mortgage payment typically includes:

Principal: The portion of your payment that goes toward the loan balance
Interest: The cost of borrowing money from your lender
Taxes: A portion of your annual property taxes, collected monthly and held in escrow
Insurance: A portion of your homeowners insurance premium, also collected monthly

Taxes and insurance can change from year to year. If they increase, your escrow payment will be adjusted accordingly.

Lenders usually perform an annual escrow analysis to see if you’ve paid too much or too little. If you overpaid, you might get a refund or reduced payment. If you underpaid, they may ask for a one-time catch-up payment or increase your monthly bill.

Why Escrow Protects Both Buyers And Sellers

Escrow exists to create a fair, protected environment for both parties. Here’s how it helps:

Buyers know their earnest money is held securely and won’t be released until all conditions are met
Sellers know that funds are verified and ready before handing over the deed
Lenders can ensure taxes and insurance are paid, reducing their risk
Title companies make sure everything is done by the book, reducing the chance of legal disputes

Whether you’re closing on a home in Newburgh or Santa Claus, your REALTOR will guide you through the escrow process and make sure you stay on track from accepted offer to closing day.

FAQ About Escrow in Indiana Real Estate

Check out these commonly asked questions about escrow. If you don’t see your question here, please call our office and we’ll find you the answers you need.

Who Holds Escrow In Indiana?

In most Indiana transactions, a title company or real estate attorney holds the escrow. They act as a neutral third party and follow the terms of the contract.

Can I Choose My Own Escrow Company?

Sometimes. The choice of title and escrow company is usually negotiated between the buyer and seller. Your REALTOR can help you decide if switching makes sense.

Do I Have To Use An Escrow Account For Taxes And Insurance?

If you have a mortgage, most lenders will require it. If you own your home outright or make a large enough down payment, you may be able to waive it—but check with your lender first.

What Happens To My Escrow Money If The Deal Falls Through?

If the sale is canceled for a reason covered by the contract (like a failed inspection or loan denial), you’ll usually get your earnest money back. If not, the seller may keep it. This is why contingencies and timelines matter.

Where Can I Find More Information About Real Estate Procedures In Indiana?

You can check IN.gov for additional resources on homeownership, property taxes, and local regulations that may affect your closing.

Understanding escrow helps you feel more confident as you move through the buying or selling process. With the guidance of a trusted REALTOR and the right title company, you’ll know exactly what’s happening with your money—and your paperwork—every step of the way in Dubois County and beyond.

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