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Buying Your Next Property: Closing
Let's talk about "escrow". An escrow company is brought on to assure your place closes on time and the closing process goes smoothly.
When money is held by a third party in a transaction between a buyer and a seller, it's in escrow.
PayPal is a simple way to think of an escrow company.
The escrow holder insures that all terms and conditions of the seller's and buyer's negotiated agreement are performed prior to the sale being completed. This includes receiving payments and paperwork, signing required forms, and obtaining the release documents for any loans or liens that are to be cleared with the transaction, assuring you have a clean title to your house before the asking price is fully paid.
These are the legal forms that escrow holders usually look to collect:
- 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
Upon completion of all portions of the escrow, closing can take place.
All payments owed and fees are taken and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions).
Title to the house is then transferred to you as new owner and correct title insurance is issued as outlined in the escrow policy.
When closing is completed, 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:
The Escrow Holder Won't:
- Prepare escrow instructions
- Petition title search
- Comply with the bank's standards as noted in the escrow agreement
- Accept funds from the buyer
- Prorate interest, insurance, tax and other payments according to guidelines
- Record deeds and other paperwork as instructed
- Request title insurance policy
- Close escrow when all instructions of seller and buyer are met
- Disburse funds and finalize instructions
- Advise you - the escrow agent stays a neutral, third-party status
- Dispense opinions about tax implications
Mortgage Escrow Account
Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created.
Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.
This is a simple outline of the escrow process. Your individual plan may be unique depending on your bank and your escrow company.