Escrow: What Is It And How Does It Work?
First time home buyers can easily become overwhelmed by the terminology used to describe each step in the home buying process. While these terms are not designed to confuse you, the sheer amount of them can make it so. Today, we will cover escrow and what it entails so you can understand one of the most important steps in buying a home. Keep reading to find out more.
“In Escrow” Defined
Escrow is a period of time. It starts when the seller accepts an offer and ends when the buyer receives the title and keys to the property. During this time the buying process is considered “in escrow”. Escrow also has a legal definition such that a third party holds items of value like money or property until specific requirements are met. This third party is known as the escrow agent. The escrow agent can be a title company, bank, or attorney. The agent’s job is to protect both the buyer and seller by holding earnest money, deeds, and loan documentation until payment is made and deeds are transferred. The earnest money offered during the offer to purchase the home is placed into an escrow account by the agent where it will be held while the property is in escrow.
The Escrow Process Itself
The first step in the escrow process is loan approval and home appraisal. If the buyer needs a loan, the lender will require the home to be appraised before approving any loan. The next step is financing and home sale. If the loan has been approved by the lender, the buyer has to let the escrow agent know that that requirement has been met. Sometimes the home purchase is contingent on the sale of another property so the buyer can get financing. If this is the case the buyer will once again have to let the agent know. Next is disclosures and inspections. If the buyer is fine with taking the property as-is they can waive inspections.
If the seller has disclosed certain problems with the home, the buyer may also just accept this in lieu of an inspection. Buyers also have the option to ask the seller to fix the issues or lower the asking price to compensate for the flaws disclosed or found during inspection. The final step is title and insurance.
Sometimes loan approval cannot be completed until the buyer purchases insurance. Additionally, the buyer should ensure that the property title is free and clear of liens. Once all of these steps have been completed it is time to close escrow and sign the final set of paperwork. Funds will be transferred and the title change will be recorded officially.
At Equity Mortgage, we work with a variety of clients with varying degrees of mortgage needs. We offer our clients alternative options to their current loan programs with our wide range of mortgage products and flexible lending practices.
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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.