Buyer Frequently Asked Questions (FAQ)
What is “escrow”?
When opening an escrow, the Buyer and Seller of a piece of property establish terms an conditions for the transfer of ownership of that property. These terms and conditions are given to a third party known as the escrow holder. The escrow holder has the responsibility of seeing that the terms of the escrow are carried out. The escrow is an independent neutral account and the vehicle by which the mutual instructions of all parties to the transaction are complied with.
How does the escrow process work?
The escrow is a depository for all monies, instructions, and documents necessary for the purchase of your home. These include your funds for down payment, your Lender’s funs, and documents for the new loan. Generally, the Buyer deposits a down payment with the escrow holder, and the Seller deposits the deed and any other necessary papers with the escrow holder. Prior to the close of escrow, the Buyer deposits the funds required and agreed upon by the parties to the sale with the escrow holder. The Buyer instructs the escrow holder to deliver monies to the Seller when the escrow holder:
- Records the deed, and
- Delivers to the Buyer a policy of title insurance, which shows title to the property vested in the name of the Buyer.
The escrow holder is authorized to deliver the deed to the Buyer when the Buyer has deposited the agreed-upon purchase price and fulfilled any other conditions specified in the escrow instructions. The escrow holder handles the proration and adjustments on any fire/hazard insurance, real estate taxes, rents, interest, etc., based on the escrow instructions of both parties.
The escrow holder thus acts for both parties and protects the interests of each within the authority of the escrow instructions. Escrow cannot be completed until the instructions have been satisfied and all parties have signed escrow documents. The escrow holder takes the instructions based on the terms of the Purchase Agreement and the Lender’s requirements.
How do I open escrow?
The Buyer’s real estate agent will open the escrow for you, as soon as you execute your Purchase Agreement. Your agent will place your initial deposit into an escrow account. Escrow instructions define all the condition that must occur before the transaction can be finalized. Your escrow instructions represent your written statement to the escrow holder, and they also provide title insurance protection for your home.
How long is escrow?
The length of an escrow is determined by the terms of the Purchase Agreement and can range from a few days to several months. An escrow averages 30 to 60 days.
What is “close of escrow”?
An escrow closing is the culmination of the transaction. It signifies legal transfer of title from the Seller to the Buyer. Usually, the Grant Deed and Deed of Trust are recorded within one working day of the escrow holder’s receipt of loan funds. This completes the transaction and signifies the close of escrow. Once all the conditions of the escrow have been satisfied, the Escrow Office informs you of the date escrow will close and takes care of the technical and financial details.
What information will I have to provide?
Statement of identify: You will be asked to complete a statement of identity, as part of the necessary paperwork. Due to the fact that many people have the same name, the statement of identity is used to identify the specific persons in the transaction through such information as the date of birth, social security number, etc. This information is kept confidential.
Information that the Buyer Needs to Provide:
Lender information: Provide the escrow holder with the name, address, and phone number of your Lender as soon as possible after opening escrow.
Hazard/fire insurance: If you are purchasing a single family, detached home, or a townhome, be sure to order your hazard/fire insurance once your loan has been approved. You should immediately begin looking for an agent; not all companies can write fire/hazard insurance. Then, call your escrow holder with the insurance agent’s name and phone number so that he/she can make sure the policy complies with your Lender’s requirements. You must have your insurance in place before the Lender will fund money to the title company. If you do not have an insurance agent, your real estate agent can help you.
Title to home: Decide how you wish to hold title to your home. The escrow holder will need this information in order to prepare the Grant Deed. We suggest you consult an attorney, tax consultant, or other qualified professional before making this decision. Your Lender will also need this information to prepare loan documents.
When do I sign loan documents? Generally, your escrow instructions will be mailed to you. Your escrow Officer or real estate agent will contact you to make an appointment for you to sign your final loan papers. At this time, the escrow holder will also tell you the amount of money you will need (in addition to your loan funds) to purchase your new home. Your loan funds will be sent directly to the title or escrow holder by the lender.
Lender’s requirements: Make sure you are aware of your Lender’s requirements and that you have satisfied those requirements before you come to the escrow company to sign your papers. Your loan officer or real estate agent can assist you.
How does the loan process work?
Your real estate agent can provide you with current financing information to help you in selecting a lender. The lender might be a bank, savings and loan, or a mortgage company. You will be required to complete a loan application, which will require personal and financial information.
What happens after I submit the loan application?
The lender will begin the qualification process. This includes verification of the information submitted on the application and appraisal of the value of the property.
The lender will require that you obtain hazard/fire insurance if you are purchasing a detached home. However, if you are buying a condominium or town house there may already be a master hazard policy. Check with your real estate agent. Also, check with you insurance agent for additional coverage for your personal property. The lender will also require that you obtain title insurance and may have other requirements that will need you attention prior to close of escrow. Your real estate agent can help you take care of these requirements well in advance.
When the loan is approved, what’s next?
When your loan is approved and the loan documents are sent to the escrow holder handling your transaction, the escrow holder will prepare an estimated closing statement which specifies in debit and credit format the disposition of your purchase funds.
How will I know where my money has gone?
Written evidence of your deposit is generally included in your copy of the Purchase Agreement (sometimes called an Agreement to Purchase and Receipt for Deposit). Then your funds will be deposited in a separate escrow or trust account and processed through a local bank.
What’s the next step after I’ve signed the closing loan documents?
After you have signed all the necessary instructions and documents, the escrow holder will return them to the lender for a final review. The review usually occurs within a few days. After the review is completed, the lender is ready to fund your loan and inform the escrow holder.
When will I receive the deed?
The original deed to your home will be mailed directly to you at your new home by the county recorder’s office. This service takes several weeks and sometimes longer depending on the county recorder’s volume.
What do I need to do before my appointment to sign loan documents?
Identification: Please bring either your valid state identification card, driver’s license, or passport with you to the escrow company. These items are needed to verify your identity by a notary public.
Cashier’s Check: Obtain a cashier’s check made payable to your escrow company in the amount indicated to you by your escrow officer. A personal check may delay the closing since escrow and title companies are required by law to have “good funds” (the check must have cleared before disbursing funds from escrow). Wired funds are another method of expediting the closing.