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Escrow 101

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First, a little about "escrow". An escrow company is brought on to assure your home closes on time and the transaction goes smoothly. Escrow holders hold money for "safe-keeping" in a deal between a buyer and seller. PayPal is a simple way to think of an escrow company.

Clearing the final hurdles like obtaining funds, finishing forms, securing the documents for loans and liens, and assuring you get a spotless title to the property in preparation of your purchase gets finalized are all part of the job of the escrow agent.

The documents the escrow company may secure include:

  • 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 outstanding payments 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 given to you as new homeowner and related title insurance is issued as outlined in the escrow policy.

The escrow agent 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:

  • Write escrow instructions
  • Petition title research
  • Meet lender's guidelines 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
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been met
  • Disburse payments and finish instructions

The Escrow Holder Will Not:

  • Offer advice - the escrow holder has to remain an impartial, third-party status
  • Offer opinions about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Write escrow guidelines
  • Petition title search
  • Comply with the bank's requirements as outlined in the escrow agreement
  • Receive 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
  • Give advice - the escrow company must maintain a neutral, third-party status
  • Give insight about future tax estimations

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.

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

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