So, this is one of those things a lot of people might feel embarrassed about asking what it is! First of all, DON’T! Today, I want to dive into what to expect through the escrow process to give you a better understanding. When you choose to buy or sell a home, you will hear this word A LOT!
So, what is escrow?
Escrow is a third party (who is neither the buyer nor the seller) to temporarily hold paperwork, money, and any other necessary assets on the buyer and seller’s behalf until the transaction is finalized. Additionally, escrow officers are in charge of disbursing funds according to the terms of the Purchase Contract, and of course, closing escrow. Having a neutral third-party, otherwise known as escrow, help to keep the transaction safe; They protect all assets until the buyer and seller have come to a mutual agreement and fulfilled all duties to each other.
When does it begin?
Once an offer is signed & accepted, it is then sent to an escrow officer and escrow gets opened. Now the fun begins! If you’re on the buy side, soon after escrow is opened you will receive instructions on how to deposit your earnest money into escrow. It is ALWAYS advised you confirm the escrow company and officer with your Realtor AND call and make contact with that escrow officer to confirm any account information if you’re wiring money.
A reminder about earnest money…
A quick recap on what earnest money is. Earnest money is also known as a “good faith” deposit. These funds get deposited into escrow within 3 business days from acceptance. They are used in one of 3 ways:
- Towards the purchase price. Once escrow closes, the earnest money will roll into your down payment.
- Get refunded back to you. If you decide (before removing contingencies) that the property is not the right one for you and back away from escrow, your earnest money gets refunded to you.
- Pass them on to the seller. As a Buyer, once you start removing contingencies, your earnest money becomes at risk. Make sure you do your due diligence within your contingency periods & feel confident in removing those contingencies! Otherwise you may loose your deposit if you back away from the escrow.
When does it close?
Seems like we skipped some steps, right? Well, escrow stays in the background of the transaction basically until closing. Once the earnest money is in, you generally won’t hear from your escrow officer until you’re nearing your closing date. They will contact you to coordinate the signing of your closing documents. Generally, you will need to either go into their office or at an extra cost, they can have a mobile notary come to you. Once the closing documents are signed, and all paperwork is in, and the buyer has transferred the remaining down payment into the account, the lender will fund the remaining amount and your escrow officer will disburse the funds. Once funds are disbursed and the file is recorded with the county recorder, escrow will close!
What you should know post-escrow
So you close on your house and get your first mortgage statement and see that you’re paying into an escrow account, whaaaaat? This account may also be referred to as an impound account, reserves, or prepaids. I know that can get confusing, but if you ever see any of them on your statement, more than likely they mean the same thing. These are funds held by your lender to make payments for your homeowners insurance and property taxes. The reason your lender collects these payments is because they have a vested interest in you making those payments.
Super fun stuff right? Well hopefully this helped clarify the process for some of you. Make sure you’re following me on Instagram and Facebook to stay up to date with all the other fun tips and homes I share throughout the week! Or to get the process rolling, check out this weeks upcoming open houses here in Huntington Beach!