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Escrow 101

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Let's talk about "escrow". When you're closing on your new property, an escrow agent is used to make sure the transaction will close appropriately and in a certain amount of time. A house is said to be in escrow when in the closing transaction, money is held by a third party on behalf of two parties when the exchange of money takes place. For example, in an Internet auction, PayPal is the reliable third party that holds the buyer's cash, and then disburses the money to the seller.

The escrow holder makes sure that all terms and conditions of the seller's and buyer's agreement are reached prior to the sale being finalized. This includes securing payments and documents, filling out required forms, and getting the release documents for any loans or liens that were cleared with the transaction, assuring you have a free title to your property before the agreed upon price is fully paid.

Escrow agents want to obtain the following forms:

  • 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

You're ready to close when each step of the finished in escrow process. All debts and fees are taken and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). The house's title is given to you and title insurance is issued per the steps of your particular escrow process.

At the close of escrow, payments are submitted in an acceptable form to the escrow. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Prepare escrow guidelines
  • Petition title inquiry
  • Meet lender's requirements as specified in the escrow agreement
  • Receive payments from the buyer
  • Prorate insurance, tax, interest and other payments according to instructions
  • Record deeds and other documents as instructed
  • Obtain title insurance policy
  • Close escrow when all instructions of seller and buyer are met
  • Disburse monies and finalize instructions

The Escrow Holder Will Not:

  • Give advice - the escrow agent stays at an impartial, third-party status
  • Offer opinions about future tax estimations
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow instructions
  • Perform a title research
  • Meet lender's standards as noted in the escrow agreement
  • Receive funds from the buyer
  • Prorate insurance, tax, interest 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 payments and finalize instructions
  • Offer advice - the escrow holder stays a neutral, third-party status
  • Offer opinions about tax implications

Mortgage Escrow Account

A Mortgage Escrow Account is used to make payments for recurring fees while there is a loan on the house. Escrow Accounts are contributed to monthly by the home buyer (who is now the homeowner), but there is also a lump sum that goes into the account at closing.

Now you know more about how to close on your future home. And, you can be a more confident home buyer and future homeowner.

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