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What is Escrow?

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Escrow
When you're closing on your new place, an escrow holder is used to guarantee the transaction will close correctly and in a timely manner. Escrow agents hold money for "safe-keeping" in an exchange between a buyer and seller. PayPal is a good way to picture an escrow company.

The escrow agent makes sure that the terms and conditions of the agreement between the two parties are performed prior to the sale being finalized.

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Escrow companies look for the following legal documents:

  • 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 completion of all portions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance and real estate commissions are collected. You'll then secure the title to the house and the title insurance gets dispersed as noted in the escrow instructions.

When closing is finished, you'll make a payment to the escrow agent. As your real estate agent, I'll let you know what is an acceptable way of paying.

The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow instructions
  • Request title inquiry
  • Comply with lender's requirements as written in the escrow agreement
  • Receive funds from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer are complete
  • Disburse funds and finalize instructions
  • Offer advice - the escrow holder stays a neutral, third-party status
  • Give insight about the outcome of your taxes

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.

This is a easy to understand guide about the escrow process. Your specific process will be slightly different depending on your lender and your escrow holder.

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