What to Expect When You're in Escrow

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

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Escrow: To finish the sale of a house, a neutral, third party (the escrow company) is engaged to assure the process will close properly and on time. When money is held by a third party in a transaction between a buyer and a seller, it's in escrow. A simple way to understand the concept of what an escrow company does is to think of the use of PayPal for online purchases.

The escrow agent is careful to assure that all terms and conditions of the seller's and buyer's agreement are completed prior to the sale being finalized. This includes receiving funds and records, filling out required forms, and getting the release documents for any loans or liens that were paid off with the transaction, assuring you have a clean title to your home before the final price is fully paid.

These are the legal documents that escrow agents usually compile:

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

Upon completion of all instructions of the escrow, closing can take place. All debts and fees are taken and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). You'll then secure the title to the property and the title insurance gets dispersed as agreed upon in the escrow instructions.

When closing is done, 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:

Assemble escrow guidelines
Request title inquiry
Meet lender's requirements as specified in the escrow agreement
Accept funds from the buyer
Prorate tax, interest, insurance and other fees 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 funds and finish instructions

The Escrow Holder Will Not:

Give advice - the escrow company must stay at a fair, third-party status
Offer opinions about tax implications

The Escrow Holder Will:		The Escrow Holder Won't:
Assemble escrow guidelines Petition title research Meet the bank's standards as written in the escrow agreement Receive funds from the buyer Prorate interest, insurance, tax and other payments according to instructions Record deeds and other documents as instructed Request title insurance policy Close escrow when all instructions of seller and buyer have been met Disburse funds and finalize instructions		Give advice - the escrow company stays a neutral, third-party status Give insight about future tax estimations

Mortgage Escrow Account

A Mortgage Escrow Account is used to make payments for on-going expenses while there is a loan on the house. Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.

Now you know more about being in escrow. And, you can be a smarter home buyer and future homeowner.

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