Home Buyer's Guide:
Escrow and Closing
What is Escrow?
When the decision is made to purchase a property, terms and conditions are
established for the ownership transfer of that property.
These terms and conditions are given to a
third party known as an escrow holder. The escrow holder acts for both parties
and protects the interests of each within the authority of the escrow
instructions.
How Does the Escrow
Process Work?
The escrow is a depository for all monies, instructions and documents necessary
for the purchase of your home, including your funds for down payment and your
lender's funds and documents for the new loan. Generally, the buyer deposits a
down payment, and the seller deposits the deed and any other necessary documents
with escrow holder.
The escrow holder forwards the deed to the
title company for recording and delivers the monies to the seller. The title
company notifies the escrow holder that a policy is vested in the name of the
buyer. The escrow holder also handles the prorations and adjustments on any
fire/hazard insurance, real estate taxes, rents, interest, etc. based on the
escrow instructions of both parties.
Escrow is completed once all terms and
conditions have been satisfied, documents have been recorded and funds have been
dispersed.
How Long is an Escrow?
The length of an escrow is determined by the terms of the purchase agreement and
can range from a few days to several months.
What is an Escrow
Account?
An escrow account is a neutral depository held by your lender for funds that
will be used to pay expenses incurred by the property, such as taxes,
assessments, property insurance, or mortgage insurance premiums which fall due
in the future. You will pay one-twelfth of the annual amount of these bills each
month with your regular mortgage payment. When the bills fall due, the lender
pays them from the special account. At closing, it may be necessary to pay
enough into the account to cover these amounts for several months so that funds
will be available to pay the bills as they fall due.
What is "Close of
Escrow?"
The close of escrow signifies legal transfer from the seller to the buyer.
Approximately three days before the scheduled close of escrow date, the loan
documents are executed by the buyer. The new lender takes 24 to 72 hours to
review the final executed documents and then wires the loan funds to the title
company. Escrow collects the remainder of the buyer's down payment and closing
costs. When loan funds are wired, the file is then set up to record (a legal
transfer of title from the seller to the buyer). The escrow holder then handles
all the final accounting, issuance of official closing statements and
disbursement of any remaining proceeds to all parties.
What is a Real Estate
Closing?
A "closing" is where you and I meet with some or all of the following
individuals: the Seller, the Seller's agent, a representative from the lending
institution and a representative from the title company, in order to transfer
the property title to you. The purchase agreement or contract you signed
describes the property, states the purchase price and terms, sets forth the
method of payment, and usually names the date and place where the closing or
actual transfer of the property title and keys will occur.
If financing the property, your lender
will require you to sign a document, usually a promissory note, as evidence that
you are personally responsible for repaying the loan. You will also sing a
mortgage or deed of trust on the property as security to the lender for the
loan. The mortgage or deed of trust gives the lender the right to sell the
property if you fail to make the payments. Before you exchange these papers, the
property may be surveyed, appraised, or inspected, and the ownership of title
will be checked in county and court records.
At closing, you will be required to pay
all fees and closing costs in the form of "guaranteed funds" such as a
Cashier's Check. Your agent or escrow officer will notify you of the exact
amount at closing.
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