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The Escrow Process – 8 Steps


What Is The Escrow Processescrow agent

When purchasing a house, there is something called escrow, and it provides for the best and legit way of purchasing a house.

The escrow process will take care of the transaction from the moment the seller accepts the house offers up to the time you get the full ownership of the house.

The process involves some steps that you’ll need to follow to successfully purchase the house, as it acts as a third-party trust account for the transactions.

This article provides a comprehensive guide on the escrow process.

Also See Who Delivers Your Offer To The Seller

Key players in the escrow process


These are the individuals who represent either the seller or buyer during the entire process of selling or buying.

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Title Company

It is the company responsible for legally transferring the real estate title from the seller to the buyer.

The company generally acts like a middle person between the escrow company and the parties in the transaction.

The company must ensure that all the parties have filed their paperwork properly.

Escrow Company

It’s the company that acts as a third party that facilitates the transactions between the two parties.

The Lending Company or Lender

Financial firm or individual who loans money to a buyer, who wants to purchase a home or a house.

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Step by step of the escrow process

All the key players will have an important role to play during the escrow agreement. The process may take some weeks, with various important steps for both parties. During the escrow process, the buyer will:

1. Open an escrow account

Once the buyer and the seller have accepted and willingly signed the mutually acceptable purchase agreement, the agent will collect the money. Then deposit the cash in an escrow account at the company’s account.
The buyer needs to open this account as per the specifications of the agreement. The company will act as the third party for collecting the documents and money the parties will need in the escrow agreement.

2. Await for the bank appraisal

An appraisal will be done by the bank, which is financing the mortgage. The buyers will have to pay for the appraisal, which aims to protect the financial interests if the property needs foreclose.
The lender won’t provide the buyer with the financing if, after the appraisal, the price comes lower than the price the seller had offered. However, it may only be possible if the seller accepts to lower the price of the bank’s appraised amount.

If the appraisal amount gets lower than the seller’s price, the buyer can change the appraiser mind by:

● Providing more information, stating why he thinks the home deserves a higher appraisal amount.

● Request for a second appraisal

● Get another lender on board and try to see if the appraisal will come in your way.

3. Secure the financing

Once the lender pre-approves the mortgage and provides the property address, they’ll prepare an estimated loan statement detailing all the loans cost, including the closing costs & interest rates, and all the other costs.
Once the buyers get the loans commitment, it’ll be good to get the written financing contingency.

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4. Approval of the seller’s disclosures

It’ll be good to get notifications on the problems or issues the seller or the agent has identified on the house, such as the positioning of the house’s various rooms.
Additionally, if the property comes with a no-seller disclosure, the buyer can seek permission to inspect the premises. The buyer will need to hire a home inspector to help him with the inspections.

The inspector will help the buyer identify any costly or dangerous defects on the property.

The buyer can react to the defects by backing out of the purchase, fixing them, or requesting a lower price. The inspections include pest inspection, environmental inspection, and geologic inspection.

5. Get the title insurance and title report

The lender will require to have the title report and insurance. The title report assures that no one apart from the seller has claims on the property.
At the same time, title insurance will protect the buyer and lender from further legal challenges which may arise later.

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6. The buyers conduct the final walkthrough

Before closing the escrow process, it’ll be good for the buyer to conduct a re-inspection.
The re-inspection ensures no new damages on the property or the seller has left items not specified in the agreement.

7. The buyer should read the HUD-1 Form carefully

The buyer will receive the HUD-1 Form a day before closing the agreement. In addition, the buyer may also receive the closing cost and the statement on the terms of the loan.
He should read this carefully. Before signing, the buyer needs to ensure that it’s similar to the one the buyer signed before.

8. Closing the escrow process

There are various ways of closing the escrow, which vary from state to state. However, there is paperwork the buyer will need to sign.
The buyer needs to ensure they read them carefully and understand them before signing.

The seller will also have to sign various legal papers. After the signing, the escrow officer will provide a new deed with the new property owner and take a copy to the authorities.

The buyer will then arrange for the payment of the down payment and the closing costs.

After which, the buyer’s lender will deposit the money to the escrow for the seller to access the funds.

Duration of the escrow process

The escrow process may take between 30 to 45 days, depending on the state and other factors.

During this period, the buyer ensures all the entities he is considering will work well to ensure the sales goes on successfully.

Don’ts of the escrow process

● Don’t quit your daily job, hoping to get self-employed; this might affect your income, thus negatively impacting the loan’s repayment, which leads to closure of the loan.

● Don’t be tempted to pre-order bigger appliances for your home before the closing process. It’ll be good to wait for the deal to close, get the report title for you to think of ordering the home appliances.

The bottom line

If you don’t understand the process of selling or buying a house, it can be a challenging task. However, using escrow is the best and safest way to sell and buy a house.

The reason being your escrow agent will oversee the whole transaction process using the procedure above.

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Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.

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