Buying a Home? What You Need To Know About Escrow

Buying a home is a time consuming process that takes weeks or even months, and the escrow period makes up a big part of that time. Home buyers who are new to the real estate scene and who have never purchased a home in the past may have questions about what escrow is and how it works. Knowing the answers can make the process a little easier.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

What is Escrow?

Escrow is the period of time that occurs after an offer is accepted on a house and before the house is officially sold. During the escrow period, the home buyer:

• prepares documentation for the loan company (if the buyer is planning to get a mortgage),
• performs inspections of the property,
• negotiates repairs,
• shops for an insurance policy, and
• prepares to move.

Escrow typically lasts about 30 days from the day the offer is accepted. Sometimes escrow lasts longer, and sometimes it is much shorter. The length of time that escrow lasts depends on whether or not the buyer is borrowing money to purchase the house, the state where the home is being sold and other factors.

During the escrow period, the home buyer must also lift various contingencies from the home buying contract. Often, escrow ends when the final contingency, the financing contingency, is lifted by the home buyer.

What Are the Home Buying Contingencies?

The home buying contingencies are clauses that allow the home buyer to cancel or renegotiate the contract at various times during the escrow period. In a typical home sale, there are three home buying contingencies.

1. Inspection contingency. This contingency allows the home buyer to negotiate repairs or a lower price on the house in the event that the home inspection reveals problems.
2. Appraisal contingency. This contingency allows the home buyer to negotiate repairs or cancel the purchase of the home in the event that the property does not appraise as high as the offer.
3. Financing contingency. This contingency allows the home buyer to cancel the contract if the loan does not fund.

For Silverton home buyers who already own a house, there is another home contingency that can protect the buyer in the event that their current home does not sell. Home buyers who own a property can talk to their real estate agent about this contingency.

How Does the Escrow Process Begin? How Does It End?

Escrow begins when the buyer and seller have both agreed upon a contract and the contract is signed. When this happens, the buyer sends a check (called "earnest money") to an escrow company. The escrow company is a neutral third party that oversees the real estate purchase process. The escrow process ends when the funds have been collected and dispersed to the seller, insurance company and other parties.

What is the role of the escrow company?

The escrow company receives funds from the lender and buyer. The escrow company also holds the paperwork and documentation produced by both parties (seller and buyer) to ensure that all papers are in proper order when the deal is complete. Some of the duties of the escrow company include:

• preparing or securing the deed,
• requesting a preliminary title search,
• complying with requirements from the lender,
• recording the deed, and
• dispersing funds when the home purchase is finalized.

How Can You Find Out More About Escrow?

If you're a home buyer who would like to know more about escrow and buying a home, talk to your real estate agent. Your real estate agent can answer your questions and provide more information about the process of purchasing a home.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.