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Escrow 101
First, a little about "escrow". When you're closing on your new property, an escrow agent is used to make certain the transaction will close correctly and in a certain amount of time. A house is said to be in escrow when in the closing process, money is secured by a third party on behalf of two parties when the transaction is taking place. PayPal is a good example of an escrow company.
The escrow holder makes sure that the terms and conditions of the agreement between the seller and buyer are performed in preparation of the sale being completed.
The pieces of paperwork the escrow company may collect include:
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
Closing on the house takes place when all of the procedures of the escrow are done. All payments owed and fees are taken and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the house is then transferred to you as buyer and appropriate title insurance is issued as noted in the escrow policy.
When closing is finished, you'll pay the fees to the escrow company. You'll know when it's time to submit the form of payment.
The Escrow Holder Will:
- Write escrow guidelines
- Perform a title research
- Comply with the bank's guidelines as noted in the escrow agreement
- Receive payments from the buyer
- Prorate insurance, tax, interest and other payments according to guidelines
- Record deeds and other paperwork as instructed
- Obtain title insurance policy
- Close escrow when all terms of agreement of seller and buyer have been finished
- Disburse payments and finish instructions
The Escrow Holder Will Not:
- Tell you what's best - the escrow agent must maintain a neutral, third-party status
- Give insight about tax implications
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The Escrow Holder Will:
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The Escrow Holder Won't:
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- Write escrow guidelines
- Perform a title search
- Meet the bank's standards as written in the escrow agreement
- Intake funds from the buyer
- Prorate tax, interest, insurance and other fees according to instructions
- Record deeds and other paperwork as instructed
- Request title insurance policy
- Close escrow when all terms of agreement of seller and buyer have been finished
- Disburse funds and finish instructions
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- Tell you what's best - the escrow agent has to remain an impartial, third-party status
- Offer opinions about future tax estimations
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Mortgage Escrow Account
Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.
Once you're comfortable with the escrow process, you can be a better buyer.