Initial Escrow Deposit Calculator

Formula

The formula to calculate the Initial Escrow Deposit is:

\[ IED = \frac{T}{12} \times M \]

Where:

$IED$ is the initial escrow deposit ($)
$T$ is the total annual tax and insurance amount ($)
$M$ is the number of months of reserve required by the lender

What is an Initial Escrow Deposit?

An Initial Escrow Deposit is the initial amount of money a buyer puts into an escrow account when purchasing a property. This deposit serves as a good faith gesture, demonstrating the buyer’s serious intent to complete the transaction. The funds in the escrow account are held by a neutral third party and are used to cover closing costs or returned to the buyer if the sale does not go through. The amount of the initial escrow deposit can vary, but it is typically around 1-2% of the purchase price of the property.

Example Calculation 1

Let's assume the following values:

Total Annual Tax and Insurance Amount (T) = 3600
Number of Months of Reserve Required by Lender (M) = 3

Using the formula:

\[ IED = \frac{3600}{12} \times 3 = 900 \]

The Initial Escrow Deposit is $900.

Example Calculation 2

Let's assume the following values:

Total Annual Tax and Insurance Amount (T) = 4800
Number of Months of Reserve Required by Lender (M) = 2

Using the formula:

\[ IED = \frac{4800}{12} \times 2 = 800 \]

The Initial Escrow Deposit is $800.