Escrow Process for Buyers

Congratulations, your offer has been accepted! Navigating the escrow process for buyers can be one of the most critical and complex steps in your journey. For many, the term “escrow” may seem overwhelming. Yet understanding its intricacies is essential to ensuring a smooth and successful home purchase. From securing earnest money to the final transfer of ownership, the escrow process acts as a safeguard for both buyers and sellers. It guarantees that all conditions of the sale are met before the transaction is concluded. In this article, we’ll outline the key stages and essential tips that every buyer needs to know to confidently move forward in their homebuying experience.

How Long Does The Escrow Process Take?

The escrow process typically takes about 30 days, though the exact timeline can vary based on several factors. Most transactions adhere to this timeline, but in some cases, escrow can extend up to 60 days, usually due to issues during the closing process. Factors affecting the escrow timeline include buyer pre-approval, state escrow regulations, lender underwriting time, and post-inspection contingencies.

Opening Escrow

With the opening of escrow, you’ll receive wire instructions to deposit 3% (Earnest Money Deposit or EMD) of the purchase price into an escrow account, which is a third-party trust account. This deposit will remain in the account until the close of escrow. It will be applied towards your down payment and closing costs.

Immediately after the opening of escrow, you will receive instructions outlining the terms of your deal. Review and sign the documents included in the escrow package. It contains a Preliminary Title Report. This report summarizes any liens, encroachments, easements, or other issues affecting the property title. It also includes Title Vesting Information, asking how you will take title to the property. Best to consult a lawyer if you have any questions. If you are purchasing a condominium, townhouse, or single-family residence within a Homeowners Association (HOA), the package will include HOA Documents. These documents provide the association’s accounting information, meeting minutes, and the covenants, conditions, and restrictions (CC&Rs).

Insurance

Compare options to find the optimal homeowner’s insurance, taking into account any additional coverage needs identified during inspections (like flood or fire insurance). It’s mandatory for buyers to maintain homeowner’s insurance throughout their mortgage term. If you are buying a condominium, check with the insurance company that insures the building, as this information may be found in the Homeowners Association documents. Having the same company insure both the inside and outside of your property can streamline the process, save you time, and reduce stress in the event of a claim.

Appraisal

A real estate appraisal, or property valuation, is the process of determining a property’s value. If you are getting a loan for your purchase, your lender will arrange for an appraisal by a real estate appraiser they select. This appraisal is crucial because the property’s appraised value affects how much the lender will finance. There is no issue if the property appraises for more than the purchase price. However, if it appraises for less, it can cause problems.

If the appraisal comes in too low, buyers have several options:

  • Find a new lender and schedule another appraisal.
  • Renegotiate with the seller to lower the sale price.
  • Back out of the sale and look for a new property.
  • Provide the appraiser with additional information to potentially increase the appraisal value.

Obtain Your Financing

After the appraisal, buyers move on to securing financing with their chosen lender. Once the appraisal process is complete, lenders will create a loan commitment document detailing the potential mortgage amount, interest rate, loan term, and associated closing costs. This information empowers buyers to negotiate favorable terms directly with their lender. Upon reaching an agreement, the financing contingency, if included in the purchase agreement, can then be removed. This step is crucial as it solidifies the financial aspect of the home purchase, ensuring that both parties are committed to moving forward with the transaction based on the agreed-upon terms of the loan.

Disclosures

Upon closing, you’ll receive a set of disclosures from the seller detailing any known issues related to the property. It’s crucial to review these documents thoroughly and reach out with any questions or concerns you may have. These disclosures serve to inform you about the property’s condition and any relevant information that could impact your decision or future ownership experience.

Inspections and Repairs

Buyers should schedule a home inspection during escrow to uncover the true condition of the property. Inspections are highly recommended because they reveal hidden issues not visible during a walk-through, although they are not always mandatory. There are different types of inspections to consider:

General Home Inspection: This covers the overall condition of the house, including electrical, plumbing, HVAC, roofing, and foundation. The inspector provides a report with repair recommendations.

Environmental Inspection: Additional testing for mold, radon gas, and other environmental concerns can be included with the general inspection or done separately by a specialized inspector.

Pest Inspection: Confirms the absence of pests like termites or rodents, with any issues needing seller attention before closing.

Flood Reports: Recommended for properties in flood-prone areas to assess weather-related risks and potential impact on insurance coverage.

Contingency Removal

During this period of contingency, it’s essential to thoroughly consider whether this purchase aligns with your needs and preferences. Take this time to explore any factors that may be causing doubt. Use this opportunity to research aspects such as the commute, permit requirements, and the school district’s quality. Remember, the investigation contingency covers a wide range of factors beyond just the property’s physical condition, allowing you to explore into what matters most to you about this purchase.

Once your appraisal is complete, your loan is approved, and all investigations are finished, it’s time to remove your contingencies. This step requires written confirmation, indicating to the seller that you are fully satisfied and prepared to finalize the deal. Once contingencies are removed, canceling escrow would result in forfeiting your 3% deposit to the seller.

Final Walkthrough

Buyers have the opportunity to conduct a final walkthrough of the property before escrow concludes. This walkthrough is primarily to ensure that any agreed-upon changes or repairs have been completed by the seller. For instance, if there were issues identified during the inspection, this is the time to verify if the seller has addressed them. Buyers can also check that no new damage has occurred to the property during the escrow period.

Closing

The final stage of the escrow process entails a significant amount of paperwork for both buyers and sellers. Once all the necessary documentation is completed, the escrow officer will issue a new deed transferring ownership of the property to the buyer. This deed is then submitted to the appropriate county recording offices to officially record the transfer.

Buyers must also provide the remaining down payment and funds to cover the closing costs. These funds are typically wired directly to the escrow account.

Upon receipt of the required funds, the buyer will receive the keys to their new home. This marks the completion of the escrow process. At this point, the escrow account is officially closed, and ownership of the property is transferred to the buyer.

In conclusion, navigating the escrow process as a homebuyer involves multiple essential steps and considerations. From securing financing and conducting inspections to finalizing paperwork and receiving the keys to your new home, each stage plays a crucial role in ensuring a successful and smooth transaction. By understanding the escrow process and working closely with your real estate agent and escrow officer, you can navigate this complex journey with confidence and achieve your dream of homeownership.