A Step-by-Step Guide To The Escrow Process

Escrow—or closing—is uncharted territory for new buyers.  Not surprisingly, many people initially find the concept confusing. Fortunately, escrow is straightforward and simply exists to protect the financial interests of both the buyer and the seller. Your mortgage company or real estate attorney can walk you through what to expect. This step-by-step guide will also make you feel more prepared.

Start an Escrow Account

After you sign a purchase agreement with the seller, it is time to enter escrow by opening an account. The purchase agreement will indicate an escrow company that will hold the account. The money is funded by the earnest money by the buyer—a good faith payment that indicates that the buyer is serious about the purchase. The escrow company will then manage the account as a neutral third party. They will also manage other financial parts of the home buying process, including accepting in the loan paperwork and transferring the signed deed.

Sign a Mortgage Agreement

Before you enter escrow, you will have secured a mortgage pre-approval, but now it is time to finalize the loan. The lender will appraise the property to decide what kind of loan to offer and will determine an interest rate and fees for your mortgage. You can negotiate before signing the agreement. Be sure to read the contract carefully to ensure that you comply with all of the conditions of your loan. For instance, your lender will likely require that you obtain title insurance and that a title search is performed on the property. You may also want to conduct further home inspections at this stage.

Close the Escrow Process

In the last few days before you are scheduled to complete the home purchase, you will do a final walk through and receive HUD-1 forms, which finalize the terms of your loan. When it is time to close escrow, you will sign multiple forms, and then arrange a bank transfer or present a cashier’s check to cover your down payment and the closing fees.

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