If you've ever wondered about the intricate details of the home-buying process, particularly the crucial phase known as escrow, you're in the right place. In this guide, we'll delve into ten key aspects of escrow that every prospective homebuyer should know. And remember, if you have any specific questions not covered here, feel free to reach out! Keep in mind as well, that while this is meant to give you an overview of what escrow means and what to expect, none of this is to be construed as legal advice. If you are in need of a real estate attorney, I'll be happy to refer one to you.
- In Escrow
The term "In Escrow" often floats around during real estate transactions, but what does it truly mean?
In essence, it signifies the period from the moment a buyer's offer is accepted until the buyer's deed is officially recorded at the county recorder's office, signifying the transfer of ownership. The official commencement of "Escrow" happens when the escrow company receives the buyer's Earnest Deposit Check.
- Opening Escrow
Once the offer is accepted, the buyer's agent contacts the chosen escrow officer (selected by the buyer), initiating the opening of the escrow account. This process involves cashing the Earnest Deposit Check into a neutral third-party account, marking the issuance of an escrow number.
- What is an Escrow Account
Buyers may encounter the need for an Escrow Account (or Impound Account) if their lender requires it. This account aids in managing the monthly payment of Property Taxes and Home Insurance over the life of the loan. Although the escrow account stays open as long as the loan is outstanding, the official "escrow" concludes when ownership transfers to the buyer.
- Escrow Process
The journey through escrow involves several milestones:
- Purchase Contract Ratification
- Cashing of Earnest Deposit Check
- Issuance of Escrow Deposit Receipt
- Buyer's continued provision of financial documentation to secure the loan
- Completion of inspections and appraisal
- Underwriter review of borrower documentation
- Waiving of contingencies
- Loan document signing by the buyer
- Loan funding
- Disbursement of funds by the escrow officer
- Recording of the new deed at the County Recorder's office
- Confirmation of recording, marking the closure of escrow
- Escrow Deposit
The earnest money deposit, offered on page one of the Purchase Contract, transforms into the escrow deposit needed to open escrow. Typically ranging from $5,000 to 3% of the purchase price, a higher deposit reflects the buyer's seriousness and financial capacity.
- Preliminary Title Report
While a preliminary title report may be in the property's disclosure package, a new one is issued during escrow. Reading and understanding this report is crucial, ensuring awareness of any potential title issues.
- Contingencies
Deciding on contingencies, such as Inspection, Appraisal, and Finance, is vital. Only the buyer can remove these contingencies by signing a waiver form, significantly influencing the flow and duration of escrow.
- Signing Documents
Once the lender's underwriter completes the loan file, including the buyer's financial documents and appraisal, loan documents are sent to the escrow company for the buyer's signatures. Sellers also sign the grant deed during this phase.
- Loan Funding
While many consider signing as the close of escrow, the buyer-signed documents must be meticulously reviewed by the lender. Only after satisfying the lender's requirements are the funds sent to escrow and disbursed to pay off any outstanding obligations.
- Close of Escrow
With all parties paid and the buyer and seller's signed deed sent to the county recorder, the escrow officer confirms the recording of the new deed. This marks the closure of escrow, a moment of congratulations for all involved.
Important Tip
Avoid making significant purchases, like a new car, during escrow, especially if you're obtaining a loan. A change in your credit profile before the loan funding stage could potentially jeopardize the entire process.
Navigating the escrow process can be intricate, but armed with this comprehensive guide, you're well-equipped to traverse each step with confidence. If you have any questions or need further clarification, don't hesitate to reach out – I'm here to help make your home-buying journey a seamless and informed experience.
