Buying a Home? First Review Common Questions about Escrow

Escrow comes to an end when the loan is approved and the buyer and seller have both fulfilled their required duties in regards to the sale.

You scoured the market and found the perfect house for you and your family. Your offer was accepted and it’s finally closing day. The last step in purchasing a house can be complicated and is a process you should go into with open eyes and complete understanding. One of the more confusing aspects of a closing can be the escrow process.

Here is a quick rundown of escrow:

What exactly is escrow?

The escrow process starts when both the buyer and seller have signed all of the offer papers. It comes to an end when the loan is approved and the buyer and seller have both fulfilled their required duties in regards to the sale.

The escrow company sits in the middle of the deal and will gather all sale related instructions and documents from the lender, buyer and seller. On closing day, after all requirements have been met, the escrow company redistributes what it has gathered to the correct parties. As an example, the house title will go to the new owner, funds are transferred to the seller or the seller’s lender to pay off a mortgage while the buyers lender gets all of the signed loan documents for the new mortgage.

Escrow holder explained

An escrow holder is a neutral third party, which helps facilitate the transfer of ownership in a real estate transaction.  An escrow agent has no material interest in the sale but is simply there to handle the various aspects of the transfer.

This includes keeping track of and safeguarding funds such as the buyer’s deposit as well as all documents involved with the sale. Documents can include items such as the buyers agreement, contracts, amendments, results of inspections as well as other legal documents.

Once the transaction is complete (usually at closing) the escrow holder distributes all funds and documents to the correct parties, which completes their part in the transaction.

Terms and conditions change

The escrow process is fluid and can change though out the sale. Escrow companies are charged with enforcing both sides of the contact so they must keep track of changes to the contract as well as the obligations of all parties involved with the sale.

One example is the inspection process. If the sale is contingent on an inspection, the escrow company must make sure this is completed before closing day. If the inspection turns up issues the contract may be amended, requiring those issues to be fixed. The escrow company would than need documentation the repairs were done prior to close.

Escrow and the title company

The title company does a complete ownership history of the property as well as a search for liens against the property. All of this information is forwarded to your escrow company. If anything appears to be out of order, such as judgments or liens the escrow company will request a clarification prior to closing and alert the buyer.

Escrow can take awhile

The length of the escrow process can vary depending on the complexity of the sale and what is agreed upon by the buyer and seller. In many cases, the escrow process takes roughly 30 days.

The speed with which every stakeholder in the process submits the required documentation can dramatically speed up, or slow down the escrow process. As an example, any new buyer must have a homeowners policy in place before closing. The quicker this is put in place, the faster the closing process can go.

All other requirements of the contract such as an inspection, good faith money or other documentation should be submitted in a timely manner to ensure an on time closing. Delays do happen and closings may be rescheduled if the escrow holder is not satisfied with the documentation.

Escrow money

Be prepared, your escrow check is cashed immediately and the money is held in a trust account. One of the most common misconceptions about the escrow process is that they don’t cash your check until closing, but that is not the case. The escrow company will disperse the funds at closing to the appropriate parties.

If you have any other questions about the escrow process, it’s important to check with your mortgage or insurance broker. Understanding the process is key to a successful closing.

When it comes to homeowners insurance for your new pad, we can help. We are partners with some of the largest and most respected insurance companies in the country and as always, our process is quick and free.