First of all, congratulations! You’ve found the perfect home, and now you’re ready to purchase it with your hard-earned money. While it’s nice to think about all the things you’ll be able to do in it, you still need to go through a lot of processes before you can call it your own. Once you come to terms with a seller, you have to settle credit reports, mortgages, inspection titles, and so much more.
For most people, these transactions are too many to navigate, which is why homeowners-to-be hire escrow agents to help them. Learn more about their services by reading on.
What Is Escrow
Escrow is the process of using a neutral third party contractor to manage major financial transactions in closing a home. The agency holds funds and other essential documents until certain conditions of the sale are fulfilled. Once these guidelines are met, the company transfers the property ownership to the buyer through recordation and then pays the seller.
Buyers typically hire escrow agents to give them the best home protection plan, since these professionals can resolve complications that may arise during large-scale transactions. They can also mitigate the chance of fraud, identity theft, or any other ill-intended scheme.
The Escrow Process
Escrow can get complicated, so the best thing to do is take time to understand the steps you have to go through. Here’s a walkthrough that helps explain everything better:
- The Underwriting Process – If you’re borrowing money to secure financing for your new home, an underwriter must review your loan documents first to ensure that you meet the lending company’s standards. The agency will require you to hand in tons of information, including your tax returns, bank statements, and credit card reports. They’re also going to ask about other debts you have.
- Earnest Money Deposit – If you’ve passed the underwriting stage, the next thing to do is pay an earnest money deposit (EMD), which is typically valued at 1-5% of the total price of the property. It’s given not as a down payment but more of good-faith money to show your interest in buying the house. Like most things in a real estate purchase, you can negotiate the price of this binder, unless you’re in a seller’s market. The EMD will eventually go toward your down payment.
- Bank Appraisal – The bank or lending company providing your mortgage will assess the value of the house you’re buying. This is to protect their financial interest if ever they need to foreclose on the real estate. If it reveals an appraisal lower than the selling price, the lender won’t finance your purchase unless the seller lessens the property cost to the estimated amount.
- Seller Disclosure Approval – The lender will inform the escrow company if they’ve approved your mortgage. Once this happens, the agency should send you a written notification of all the property’s issues that have been identified by the seller. Most of them should have been on the listing. You have to approve them to continue with the transaction.
- Home Inspections – You aren’t required to take this step, but it’s in your best interest to do so. There may be some costly or dangerous property defects that went unnoticed. You’ll want to learn about them so you can ask the seller to fix these issues, lower the property price, or back out on the purchase.
- Closing the Escrow Account – Like the underwriting process, closing the escrow account involves paperwork. The agent has to see to it that all the steps were well-documented, and contracts have been properly signed. After that, the escrow officer prepares a deed naming you as the real estate owner, and then you’ll have to wire the remaining funds to the company, so the seller gets paid.
Having a licensed escrow agency to handle your transactions is the most convenient way to purchase real estate. Get in touch with Secure Title Lock for the home protection plan you deserve.