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Escrow 101
Let's talk about "escrow". When you're closing on your new house, an escrow agent is used to guarantee the process will close without problems and in a timely manner. A property is said to be in escrow when in the closing process, money is secured by a third party on behalf of a buyer and a seller when the exchange of money takes place. A simple way to understand what an escrow company does is to think of the use of PayPal for Internet purchases.
Settling the last details like taking in funds, signing forms, getting the documents for loans and liens, and making sure you get a clear title to the home prior to your purchase gets finalized are all parts of closing in which an escrow holder is useful.
These are the legal documents that escrow companies usually look for:
- 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
- Terms of sale and any seller-assisted financing
You're ready to close when every step is finished in escrow process. 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 home is then transferred to you as now current homeowner and correct title insurance is issued as outlined in the escrow instructions.
At the close of escrow, payment of funds shall be made in an acceptable form to the escrow. You'll know when it's time to submit the form of payment.
The Escrow Holder Will:
- Write escrow guidelines
- Request title search
- Comply with lender's requirements as outlined in the escrow agreement
- Receive payments from the buyer
- Prorate interest, insurance, tax and other payments according to instructions
- Record deeds and other legal documents as instructed
- Obtain title insurance policy
- Close escrow when all instructions of seller and buyer are complete
- Disburse payments and finish instructions
The Escrow Holder Will Not:
- Tell you what's best - the escrow company stays at an impartial, third-party status
- Give insight about the outcome of your taxes
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The Escrow Holder Will:
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The Escrow Holder Won't:
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- Prepare escrow instructions
- Request title inquiry
- Comply with lender's standards as noted in the escrow agreement
- Intake funds from the buyer
- Prorate insurance, tax, interest and other payments according to instructions
- Record deeds and other legal documents as instructed
- Obtain title insurance policy
- Close escrow when all terms of agreement of seller and buyer are complete
- Disburse payments and finish instructions
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- Give advice - the escrow company must maintain a neutral, third-party status
- Give insight about tax implications
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Mortgage Escrow Account
A Mortgage Escrow Account is established to make payments for rolling fees while there is a loan on the house. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.
Now you know more about how to close on your future home. And, you can be a smarter home buyer and future homeowner.