What is Escrow?
An escrow holder is hired to assure your property closes on time and the money exchanging part of closing goes smoothly. Escrow agents hold money for "safe-keeping" in transactions between a buyer and seller. An easy way to understand the concept of what an escrow company does is to think of how you might use PayPal for online purchases.
The escrow company insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being completed. This includes getting payments and paperwork, completing required forms, and seeking out the release documents for any loans or liens that were cleared with the transaction, assuring you have a clear title to your home before the negotiated price is fully paid.
Escrow agents want to obtain the following documents:
- Tax statements
- Fire and other insurance policies
- 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
Upon completion of all instructions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance and real estate commissions are paid out. The house's title is given to you and title insurance is issued per the policies of your individual escrow process.
When closing is done, you'll submit a payment to the escrow holder. As your real estate agent, I'll let you know what is an acceptable way of paying.
The Escrow Holder Will:
The Escrow Holder Won't:
- Write escrow instructions
- Perform a title inquiry
- Meet the bank's requirements as specified in the escrow agreement
- Intake funds from the buyer
- Prorate tax, interest, insurance and other fees according to guidelines
- Record deeds and other paperwork as instructed
- Request title insurance policy
- Close escrow when all terms of agreement of seller and buyer are complete
- Disburse monies and finish instructions
- Offer advice - the escrow holder stays a neutral, third-party status
- Offer opinions about tax implications
Mortgage Escrow Account
Creating a Mortgage Escrow Account helps keep track of on-going expenses while there's a loan on your 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 being in escrow. And, you can be a smarter home buyer and future homeowner.