Mortgage 101: What is Escrow?
What is Escrow?
No matter how many times you’ve purchased a home, the escrow process can still be a source of confusion. If you’re buying your first home, this is doubly so. So what exactly is escrow and how does it work?
There’s a lot at stake during a real estate transaction and there’s plenty of room for error. That’s where escrow agents come in. You can think of an escrow agent as an impartial third party who takes possession of important documents and funds for safe keeping while the closing process is in progress. After you have closed on your house the money that you pay to your escrow each month will go towards your property taxes and insurance.
Your Responsibilities as a Buyer
Now that you know what escrow is, you may be wondering what will be required of you during the escrow process. First, you’ll need to provide the escrow agent with your proper name and contact information, as well as the information of anyone else whose name will be listed on the title. You’ll also need to provide contact information for your lender. You’ll need to deposit your closing costs, including prorated insurance, earnest money, down payment, title fees, and any other funds needed to close your transaction with your escrow agent. Your escrow officer may periodically contact you to review and approve reports generated by agreed-upon inspections and other commitments stipulated in the sales agreement.
The Escrow Process, Step By Step
Escrow is opened as soon as a seller accepts a purchase contract from a buyer. The process begins with a preliminary report and then moves on to various assessments, which may include pest inspections, property surveys, appraisals, and home inspections. Once the buyer and lender have reviewed and approved those reports, it’s time to choose a title insurance company. Buyers often heed recommendations from real estate agents or lenders, but it may not be a bad idea to shop around for title insurance. Just make sure you read the fine print before committing.
Once homeowners insurance has been secured, the lender will grant final approval for the loan and send the loan documents to the escrow agent. The documents will be sorted and compiled, and the buyer and seller will be summoned to sign them. With the documents signed, it’s time for the buyer to deposit the money required to complete the transaction, and for the lender to have one final review. Following that review, the escrow agent will verify that all parties involved have met the necessary requirements. Finally, the lender will send the mortgage funds to an escrow account, the documents will be recorded, and the funds are disbursed to the seller.
Here’s the Fun Part!
With escrow closed, you’ll get the keys to your new home! Welcome to the world of homeownership; the hard part is over. Now it’s time to call your closest friend with a pickup truck, place an order with your local pizza joint, and start thinking about paint colors!
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