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What is Escrow?

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First, a little about "escrow". An escrow holder is brought on to assure your property closes on time and the closing process goes smoothly. A home is said to be in escrow when in the closing process, payment is held by a third party on behalf of a buyer and a seller when the exchange of money takes place. An everyday way to understand the concept of what an escrow company does is to think of the use of PayPal for Internet purchases.

The escrow agent makes sure that the terms and conditions of the agreement between the seller and buyer are performed in preparation of the sale being finished.

Escrow companies want to acquire the following forms:

  • 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
  • Tax statements

Upon completion of all instructions of the escrow, closing can take place. At this time, all payments and fees for inspections, title insurance and real estate commissions are taken. The house's title is given to you and title insurance begins per the steps of your particular escrow process.

When closing is finished, you'll submit a payment to the escrow holder. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Assemble escrow guidelines
  • Perform a title research
  • Meet lender's guidelines as outlined in the escrow agreement
  • Receive payments from the buyer
  • Prorate tax, interest, insurance and other fees according to instructions
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are met
  • Disburse funds and finish instructions

The Escrow Holder Will Not:

  • Give advice - the escrow holder stays at an impartial, third-party status
  • Offer opinions about future tax estimations
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow instructions
  • Petition title search
  • Comply with the bank's requirements as noted in the escrow agreement
  • Receive funds from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other legal documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been finished
  • Disburse monies and finalize instructions
  • Tell you what's best - the escrow agent must stay at a fair, third-party status
  • Give insight about the outcome of your taxes

Mortgage Escrow Account

Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.

Now you know more about how to close on your future home. And, you can be a more informed home buyer and future homeowner.