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First-Time Home Buying: How To Close on a House

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Escrow: When you're closing on your new house, a neutral, third party (known as the escrow holder or the escrow agent) is used to guarantee the transaction will close properly and in a specific time frame. Escrow holders hold money for "safe-keeping" in a deal between a buyer and seller. PayPal is a good example of an escrow company.

The escrow company makes sure that the terms and conditions of the agreement between the sellers and the buyers are completed prior to the sale being completed.

These are the legal documents that escrow holders usually look to collect:

  • Loan documents
  • Tax statements
  • 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

Upon completion of all portions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance and real estate commissions are taken. The house's title gets handed over to you and title insurance is issued per the steps of your particular escrow agreement.

When closing is completed, you'll submit a payment to the escrow holder. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Prepare escrow instructions
  • Request title search
  • Meet lender's standards as specified in the escrow agreement
  • Receive funds from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other legal documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer are met
  • Disburse payments and finalize instructions

The Escrow Holder Will Not:

  • Offer advice - the escrow company must maintain a neutral, third-party status
  • Offer opinions about tax implications
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow instructions
  • Request title research
  • Comply with the bank's standards as written in the escrow agreement
  • Accept funds 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 instructions of seller and buyer are complete
  • Disburse monies and finalize instructions
  • Advise you - the escrow company stays a neutral, third-party status
  • Offer opinions about the outcome of your taxes

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 have the rules of the escrow process down, you can be a better buyer.

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