How Escrow Works

Escrow
To close the sale of a house, a neutral, third party (the escrow company) is brought into the picture to assure the process will close correctly and on time. When payment is held by a third party in a transaction between a buyer and a seller, it's in escrow. An easy way to understand the concept of what an escrow company does is to think of the use of PayPal for online purchases.

Settling the last details like obtaining funds, finishing forms, obtaining the documents for loans and liens, and making sure you get a spotless title to the home in preparation of your purchase gets finalized are all parts of closing in which an escrow agent is useful.

Escrow holders look for the following records:

  • Requests for payment for various services to be paid out of escrow funds
  • Loan documents
  • Tax statements
  • Fire and other insurance policies
  • Title insurance policies
  • Terms of sale and any seller-assisted financing

Closing on the home takes place when the steps of the escrow are complete. All payments owed and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). You'll then get the title to the property and the title insurance gets dispersed as agreed upon in the escrow instructions.

At the close of escrow, fees are paid in an acceptable form to the escrow. I'll keep you up-to-date on the procedure.

The Escrow Holder Will:
 
The Escrow Holder Won't:
  • Prepare escrow guidelines
  • Perform a title research
  • Meet lender's requirements as noted in the escrow agreement
  • Intake funds from the buyer
  • Prorate interest, insurance, tax and other payments according to instructions
  • Record deeds and other paperwork as instructed
  • Request title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse payments and finish instructions
 
  • Advise you - the escrow holder stays at an impartial, third-party status
  • Give insight about future tax estimations

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 being in escrow. And, you can be a smarter home buyer and future homeowner.