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What is Escrow?

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Let's talk about "escrow". To finish the sale of a property, a neutral, third party (the escrow holder) is brought into the picture to assure the transaction will close correctly and on time. When money is held by a third party in a transaction between a buyer and a seller, it's in escrow. PayPal is a good way to picture an escrow company.

Tying up any loose ends like taking in funds, completing forms, getting the documents for loans and liens, and making sure you get a clean title to the home before your purchase gets finalized are all parts of closing in which an escrow company is useful.

The documents the escrow company may secure include:

  • Title insurance policies
  • 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

You're ready to close when all steps are done in escrow process. At this time, all payments and dues for inspections, title insurance and real estate commissions are paid out. You'll then obtain the title to the home and the title insurance gets issued as outlined in the escrow instructions.

When closing is done, you'll pay the fees to the escrow agent. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Prepare escrow guidelines
  • Request title inquiry
  • Comply with lender's requirements as specified in the escrow agreement
  • Receive funds from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are met
  • Disburse monies and finish instructions

The Escrow Holder Won't:

  • Give advice - the escrow company must maintain a neutral, third-party status
  • Give insight about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow guidelines
  • Petition title search
  • Meet the bank's standards as specified in the escrow agreement
  • Accept payments from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer are met
  • Disburse funds and finalize instructions
  • Tell you what's best - the escrow holder stays a neutral, third-party status
  • Give insight about future tax estimations

Mortgage Escrow Account

A Mortgage Escrow Account is used to make payments for on-going expenses 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.

Once you have the rules of the escrow process down, you can be a better buyer.

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