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First-Time Home Buying: How To Close on a Home
Let's talk about "escrow". To complete the sale of a home, a neutral, third party (the escrow company) is engaged to assure the transaction will close perfectly and on time. When payment is held by a third party in a transaction between a buyer and a seller, it's in escrow. An easy way to understand the concept of what an escrow company does is to think of the use of PayPal for online purchases.
The escrow company makes sure that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finished. This includes receiving funds and certificates, filling out required forms, and obtaining the release documents for any loans or liens that have been cleared with the transaction, assuring you have a free title to your property before the final price is fully paid.
These are the documents that escrow holders usually look to collect:
- Loan 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
You're ready to close when all steps are done in escrow process. All debts and fees are collected and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to you as new owner and appropriate title insurance is issued as noted in the escrow policy.
When closing is in it's last step, you'll submit a payment to the escrow company. As your agent, I'll inform you of the acceptable way of paying.
The Escrow Holder Will:
The Escrow Holder Won't:
- Prepare escrow guidelines
- Petition title search
- Meet the bank's requirements as written in the escrow agreement
- Accept payments from the buyer
- Prorate tax, interest, insurance and other fees according to instructions
- Record deeds and other paperwork as instructed
- Obtain title insurance policy
- Close escrow when all instructions of seller and buyer have been met
- Disburse monies and finish instructions
- Give advice - the escrow holder must maintain a neutral, third-party status
- Give insight about tax implications
Mortgage Escrow Account
A Mortgage Escrow Account is used to make payments for rolling 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 informed home buyer and future homeowner.