Learn More About the Escrow Process

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

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First, a little about "escrow". When you're closing on your new place, an escrow company is used to make certain the transaction will close appropriately and in a certain amount of time. Escrow companies hold money for "safe-keeping" in an exchange between a buyer and seller. For example, in an online auction, PayPal is the neutral third party that obtains the buyer's funds, and then disburses the payment to the seller.

The escrow holder is careful to assure that all terms and conditions of the seller's and buyer's negotiated agreement are completed prior to the sale being finalized. This includes getting payments and paperwork, finishing required forms, and seeking out the release documents for any loans or liens that were cleared with the transaction, assuring you have a clean title to your place before the asking price is fully paid.

Escrow agents want to obtain the following pieces of paperwork:

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
Loan documents

Upon finishing of all portions of the escrow, closing can take place. At this time, all payments and fees for inspections, title insurance and real estate commissions are collected. The home's title gets transferred to you and title insurance is issued per the policies of your individual escrow process.

When closing is completely finished, you'll make a payment to the escrow holder. As your real estate professional, I'll inform you of the acceptable form of payment.

The Escrow Holder Will:

Prepare escrow guidelines
Perform a title search
Meet lender's guidelines as outlined in the escrow agreement
Accept funds from the buyer
Prorate insurance, tax, interest and other payments according to instructions
Record deeds and other paperwork as instructed
Obtain title insurance policy
Close escrow when all terms of agreement of seller and buyer are complete
Disburse payments and finish instructions

The Escrow Holder Won't:

Give advice - the escrow company must maintain a neutral, third-party status
Offer opinions about future tax estimations

The Escrow Holder Will:		The Escrow Holder Won't:
Assemble escrow instructions Perform a title research Meet lender's standards as outlined in the escrow agreement Accept funds from the buyer Prorate interest, insurance, tax 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 have been met Disburse monies and finish instructions		Offer advice - the escrow holder 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 easy to understand guide about the escrow process. Your specific plan could be slightly different depending on your bank and your escrow company.