Congratulations! You Just Opened Escrow. Now what?
After years of working hard, saving your earnings and building your credit history, it is finally time to purchase your dream home, and the very last steps lie in the escrow process. However, if you’ve never used an escrow before, it can seem quite confusing. Understanding the purpose of an escrow and how the escrow works will help make the process of buying a first home seem less intimidating.
Basically, an escrow is used for the protection of all the parties involved in the real estate transaction. For most, the purchase of a home will be the single biggest purchase of their lifetime. Large sums of money will change hands when you buy real estate, which is why an escrow company is hired to implement the transaction according to the terms of the sales agreement. Purchasing a home also involves a significant amount of paperwork. Important legal documents that must be signed and filed in a timely manner to ensure that the sale goes through without a hitch. The escrow officer also takes possession of all the documents involved in the sale to ensure that the necessary paperwork will be completed and filed at the right time and in the right place.
If you’ve just opened escrow, and are now wondering what will happen next, here is an introduction to the escrow process timeline. Although not all home purchases follow the exact same escrow process timeline, the following is a common step-by-step glimpse into the process:
- Appraisal. The lender will do their own appraisal to ensure that the agreed upon purchase price is not higher than the home value.
- Financing. You may already be pre-approved or pre-qualified for a loan; however, once you have decided on a specific property the lender will prepare a “good faith estimate” that details the loan amount, monthly payments, interest rate, and closing costs.
- Disclosures. The seller must provide you with a written list of any known problems with the home.
- Inspections. You will need to have a certified home inspection as well as other inspections that are required by the lender such as a pest inspection or a flood inspection.
- Insurance. Your lender will require you to provide proof of homeowners insurance. You may also need additional insurance, such as flood, earthquake, or hurricane insurance depending on where the home is located.
- Title report/insurance. The seller must have a clear and unencumbered title to the home in order to sell it to you. A title report looks for things such as liens that would prevent a clear title. You may also need to purchase a title insurance. Title insurance protects you if something is overlooked during the title search.
- Final walk through. This is done to make sure nothing has changed since you made the purchase offer and that items such as appliances or window treatments are left behind if they are part of the purchase agreement.
- HUD forms. This will arrive just before the closing and is the final statement of loan terms, fees, and closing costs. Review it for mistakes.
- Close escrow. This is when you close on the home. You will sign lots of documents and will likely need to pay costs related to the sale other than the purchase price. The lender will transfer the remaining purchase money and your escrow funds will be released by the escrow agent and applied to the purchase price.
Working with an experienced real estate professional is highly advisable when buying a first home to ensure that the escrow process timeline proceeds in a smooth manner. For more information about how to navigate the escrow process, contact one of our Better Homes and Gardens Real Estate professional today!