Escrow means having a neutral third-party, a middleman, hold any money associated with the sale of home until the transaction is over. For example, when you put an offer on a home, you also must put in some earnest money to show that you are making a serious offer.
Where does it go?
That earnest money goes in an escrow account. Once your money transfers to the seller at closing, meaning you’ve bought the house, the escrow ends. Escrow is mandatory when buying a house. Besides buying a house from the owner, you can buy a foreclosed house from the bank. You still go through escrow.