How To Understand The Escrow Process For Buyers

By Cory Shuett, 23 Jan 20:57

Escrow is not a word most people see and use every day. It's a rather complicated term, because it can be used to mean several different things.

1. A few weeks ago, when you made an offer on your new home, you made an earnest money check that was to be put in “escrow.” This meant that it was given to a third party while you discussed the terms of a purchase contract. A real estate agent most likely made this up.

2.Your lender mentioned making an “escrow” account, which is also known as a “reserve” or an “impound” account. Money for property taxes and homeowner’s insurance is held here. The lender might have an internal department that will deal with this kind of escrow.

3. The “closing of escrow” is even more complicated and is explained by somebody referred to as an escrow officer.

An escrow is something important that is given to an unbiased third party to keep until certain terms are met. When the whole thing is completed, the escrow will close.

If you remember one thing about the term escrow, remember the use of an unbiased third party. An escrow agent, title agent or closing attorney will handle the escrow process, depending on your location.

They will manage all of the documents and money received from buyers, sellers, agents, lenders and various other people. They will set up the title search, give each party direction, arrange the closing meeting, pay out all finances and make sure that everything involved with the county is finished.

The Holdback of Funds
There are incidents where funds may remain in escrow following the ownership shift to the buyer.
Perhaps you have decided to let the seller’s family stay in the house until the school year is over. You signed a “rent back” contract, and according to its conditions, the seller pays you a daily fee to remain in the home. You were probably told to have the escrow agent reserve some of the profits until they have moved out.

Maybe you discovered something wrong on your last tour the home. The seller decided to repair it, but the job could not be finished on time. In this case, money is held in escrow pay for the repairs.
If you are buying a new home, funds are usually held back in escrow until uncompleted work is done.

The Close of Escrow
When the buyer and seller sign their name on all the appropriate paperwork and all the money has come in, the closing agent will pay out the funds and register the forms with the county.

When the forms are registered, ownership of the home is given to you, the new owner. The deal is done, and the escrow is closed.

Both you and the seller will get a closing statement among other forms by mail. Look over the document thoroughly and call the closing agent if you find a mistake. Keep the statement among your most important files. You will want it when you file your next income tax return.

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Tags: escrow buying