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What Is Escrow?
One of the most confusing processes for the uninitiated to go through can be buying a home. At times it may seem that people are speaking a different language than they have ever heard before. This situation to often leaves a home buyer having to take on blind faith that the brokers, attorneys, escrow agents, inspectors and mortgage agents know what they are doing and acting in the buyers best interest.
When Do You Enter Escrow
The escrow or closing process actually begins once you, the buyer and the seller have agreed on a price and all the conditions for the sale. At the same time that the sales agreement is signed your real estate agent will collect an agreed upon percentage of the sale price from you and deposit it into an escrow account with an escrow agent.
This is known as earnest money and as the name implies it is to show that you are earnest in your desire to buy the property. Think of it as a deposit.
What is an Escrow Agent
An escrow agent is a neutral third party who actually handles all of the funds and documents associated with the buying and selling of the property. Not being a party to the sale, in any way, their function is to make sure that all parts of the sale are executed in an equitable and legal manner. Like a referee or umpire the make sure the rules are followed and that everyone plays fair.
Steps of the Escrow Process
- Entering Escrow- Set the sells conditions, sign the sells agreement, open and escrow account and deposit earnest money.
- Bank Appraisal– You should be preapproved before you start looking for a home. Still the bank is going to want their own, independent appraisal to assure the property value will cover the loan amount. Note: home buyer usually pays for this and if property cannot be sufficiently financed sale is cancelled and earnest money returned. This varies state to state and situation to situation. All is negotiable when creating the offers and counter offers.
- Good Faith Estimate- Once financing is approved you will be given a good faith estimate detailing all of your finances (interest rate, closing cost, inspection fees, etc.) associated with the sale.
- Obtain inspections– These may or may not be required depending on what area you are purchasing a home but a general home inspection is always a good idea. Some other inspections you may consider or be required to have are pest inspection, environmental inspection.
- Acquire Homeowners Insurance- This is a condition of any mortgage but you don’t have to use their recommended insurance company. Shop around to find your best deal and coverage.
- Receive Title Report and Title Insurance- These assure you that not one else other than the seller has any claim on the property. In real estate parlance, that the property is unencumbered.
- Final Walk-Through– One last look around the property.
- Review Form HUD 1- This is the finale detailed report of all cost associated with the purchase. Check it closely against the good faith estimate to make sure that no mistakes have been made or added cost tacked on.
- Closing- The last step. Where all the money and finale paperwork gets taken care of. Be prepared to spend half a day signing your name
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