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What is Escrow?
Let's talk about "escrow". An escrow agent is hired to assure your house closes on time and the closing process goes smoothly. A home is said to be in escrow when in the closing process, payment is secured by a third party on behalf of two parties (in this case, a buyer and a seller) when the transaction is taking place. For example, in an Internet auction, PayPal is the reliable third party that obtains the buyer's money, and then disburses the payment to the seller.
Settling the last details like taking in funds, finishing forms, securing the documents for loans and liens, and making sure you get a spotless title to the home prior to your purchase gets finalized are all parts of closing in which an escrow agent is useful.
The records the escrow holder may secure include:
- Fire and other insurance policies
- Title insurance policies
- 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
Closing on the property takes place when all of the procedures of the escrow are done. All payments owed and fees are collected 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 new homeowner and appropriate title insurance is issued as outlined in the escrow policy.
The escrow holder gets a payment when the closing is complete. You'll know when it's time to submit the form of payment.
The Escrow Holder Will:
- Prepare escrow guidelines
- Request title inquiry
- Comply with the bank's guidelines as specified in the escrow agreement
- Intake payments from the buyer
- Prorate insurance, tax, interest and other payments according to guidelines
- 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 funds and finish instructions
The Escrow Holder Will Not:
- Tell you what's best - the escrow holder stays a neutral, third-party status
- Offer opinions about tax implications
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The Escrow Holder Will:
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The Escrow Holder Won't:
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- Assemble escrow instructions
- Perform a title search
- Meet the bank's standards as outlined in the escrow agreement
- Accept funds from the buyer
- Prorate interest, insurance, tax and other payments according to instructions
- Record deeds and other documents as instructed
- Obtain title insurance policy
- Close escrow when all terms of agreement of seller and buyer have been finished
- Disburse funds and finalize instructions
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- Give advice - the escrow company stays a neutral, third-party status
- Give insight about the outcome of your taxes
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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.
Now you know more about how to close on your future home. And, you can be a smarter home buyer and future homeowner.