Escrow and Closing Process: What Every Home Buyer Needs to Know

Closing is not something most buyers focus on during their home search. Most people assume that the closure works by itself, but this is far from the case.

Closing, or rather, the “escrow process” in real estate parlance, is complex and if something goes wrong, it can really hurt your deal. Smart buyers are actively involved in the entire escrow process.

We’ll go over the basics of escrow and also cover what you, the buyer, can do to keep things running smoothly.

The basics

Escrow involves four main parties: the buyer, the seller, the lender, and the escrow company. The escrow company acts as a neutral third party (paid 50/50 by the buyer and seller) that holds the documents and funds until the transaction is complete.

The four main parties will also interact with a few other people during the escrow, including real estate agents, home inspectors, insurance companies, and appraisal companies.

Escrow typically takes 1-6 weeks, depending on the type of loan you have and a number of variables outside of your control. With the recent rise in foreclosures and government incentive programs, the real estate closing machinery has been running a bit behind schedule in some places, so be prepared for it to take longer than usual.

Find an escrow company

Your real estate agent can usually recommend an escrow company, or if you’re buying a condominium building, the developer may have an escrow company they’re working with. There are different customs in different areas that dictate who selects the escrow company, but it’s wise to make sure the company you select is reputable (ask around or do a Google search).

Who does what

• the custody officer open an account and collect your deposit (deposit), get the loan information from the lender and the contract for the transaction. Near the end of the escrow, the escrow officer completes a closing statement (or HUD), which shows all costs associated with closing, including your down payment. This is how he will know how much money per penny he will need to bring to closing; so far, he has only seen estimates.
• the lender Get an appraisal to make sure it’s worth what you’re paying for it. (The purpose of this appraisal is to make sure you have enough collateral for your loan.) Appraised value is not something the seller needs to know; all that matters is that the appraisal was done “at value”. Sometimes a lender will tell you separately if the appraisal was really “overvalued.”
• The buyer (you!) purchase title insurance (in some cases, escrow companies may sell you title insurance). This insurance basically ensures that the title is “clean,” meaning that no one can come out of nowhere somewhere along the way and claim that you do not legally own your home. You will also need to purchase homeowners insurance during escrow; you can have coverage start on your closing date. Prior to closing, you will have the opportunity to take a final walk-through to ensure that all of the repairs you requested have been made and the property is delivered in acceptable condition.

Closure is achieved when:

• The buyer and the seller have signed documents.
• Buyer’s money is deposited in escrow
• The lender has approved the signed documents
• New deed and financing documents have been registered.
• The lender has transferred loan funds

Closing Conclusion and Escrow:

• As a buyer, you won’t have to do a lot of work
• However, their unofficial job is to make sure everyone else is doing their jobs with polite “check-in” emails.
• You must respond to all communications quickly to keep things running.
• You must have your funds ready in a liquid account, ready to make the transfer
• Missing your closing date is a nuisance that can range from minor to debilitating – do your best to meet your closing date.