What at Is Escrow?
In general terms, escrow is simply the holding of funds in a transaction by a neutral third party. The escrow process in real estate is meant to provide protection for both buyers and sellers during the process of a home purchase/sale.
“The purpose of escrow is two-fold. It guarantees the seller that the buyer has the funds needed for the purchase and that the money will be handed over once the title is transferred, and it guarantees the buyer that they won’t be scammed by a fraudulent seller who actually holds no claim to a title. Ultimately, escrow helps ensure trust in a high-stakes transaction where neither party may be familiar with each other and where both have a lot to lose.”
Here are the key points to keep in mind about escrow and the escrow process:
The process “occurs between the time a seller accepts an offer the buyer gets the keys.”
“To start, a buyer needs to open an escrow account in which funds are held.
“Buyers will then need to wait for a bank appraisal, secure a mortgage, get various inspections, buy insurance, and conduct a final walk-through.”
The culmination of the escrow process takes place at closing “when the seller receives the funds and the buyer receives title to the home.”
How long the whole escrow process varies, but it can take up to two months.
Steps in the Process
The typical steps in the escrow process for Sacramento home buyers and sellers are as follows:
Escrow account opened – After an offer has been accepted, the buyer works with her agent to set up an escrow account. A neutral third party such as a title company, financial institution, or escrow company will hold the account/funds with the aim of protecting both parties while all aspects of the sale are finalized.
Appraisal performed – “The mortgage provider will schedule an appraisal during the closing process. This is necessary to secure financing for the property. The appraiser is checking to make sure the property value reflects the offered price. This will ensure the lender is protected in case they were ever to foreclose on the property.”
Financing secured – After the appraisal, the buyer secures financing, and the lender drafts “a loan commitment that outlines the potential mortgage amount, interest rate, term, and closing costs.”
Seller disclosures approved – “At this point in the process, buyers should be aware of any seller disclosures included during negotiations. Essentially, this means that sellers have shared anything done to the property that may affect the home’s condition.”
Inspection performed – The buyer schedules an inspection to find out the true condition of the property.
Insurance purchased – This is a requirement for all buyers with a mortgage.
Title report and title insurance acquired – “A title report will let you know if there are any tax liens or ownership claims on the property. This is a crucial step to securing financing and moving forward in the escrow process. . . . In addition, buyers can purchase title insurance to protect themselves if any legal disputes regarding property ownership come up in the future.”
Final walk-through done – Buyers have a chance to do a final walk-through before completion of the escrow process.
HUD-1 form reviewed – “A HUD-1 form is used across the United States at the time a mortgage loan is issued. It will specify the buyer and seller’s information, financing details, closing costs, transaction fees, and more. It is crucial to review each portion of this document before the conclusion of the escrow process.”
Close of escrow – “Once this step has been completed, “the escrow officer will issue a new deed to the property [naming] the buyer as the owner, which is then “submitted to the appropriate county recording offices. Buyers then need to provide the rest of the down payment and funds to cover the remaining closing costs. These funds will be wired directly to the escrow account before ultimately being distributed to the seller and seller’s lender. After these are received, the buyer will receive the keys to their new home, and the escrow account will officially be closed.”
The Sacramento Agent Advantage
Escrow protects both buyer and seller, as well as the lender. The process is fairly complex and you need to know what you’re getting into. The best course is to work closely with an experienced Sacramento to ensure the process goes smoothly – and legally. When you’re facing the escrow process, then, be sure to contact us at (916) 741-3030.