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What is Escrow?
Escrow: When you're closing on your new house, a neutral, third party (known as the escrow holder or the escrow agent) is used to make certain the transaction will close appropriately and in a certain amount of time.
When payment is held by a third party in a transaction between a buyer and a seller, it's in escrow.
PayPal is a good example of an escrow company.
Tying up any loose ends like receiving funds, completing forms, obtaining the documents for loans and liens, and assuring you get a spotless title to the property in preparation of your purchase gets finalized are all part of the job of the escrow holder.
These are the legal documents that escrow companies usually look for:
- 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
Upon finishing of all portions of the escrow, closing can take place.
All expenses like title insurance, inspections and real estate commissions are paid.
Title to the property is then transferred to you as buyer and appropriate title insurance is issued as outlined in the escrow policy.
When closing is done, you'll make a payment to the escrow company.
You'll know when it's time to submit the form of payment.
The Escrow Holder Will:
The Escrow Holder Won't:
- Prepare escrow instructions
- Request title research
- Comply with the bank's standards as outlined in the escrow agreement
- Receive payments from the buyer
- Prorate tax, interest, insurance and other fees according to instructions
- Record deeds and other documents 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 agent must maintain a neutral, third-party status
- Dispense opinions about tax implications
Mortgage Escrow Account
A Mortgage Escrow Account is used to pay on-going expenses while there is a loan on the house.
Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.
Once you have the basics of the escrow process down, you can be a better buyer.