What Happens When You’re In Escrow?

In real estate, escrow refers to the window of time between when your offer is accepted and when the sale is complete and the home is officially yours.  It is really a series of documents, processes and deadlines that need to be met in order to keep the contract valid and the process moving forward.  The process typically takes between 30-45 days and is managed by a third party (typically a Title Company) that is not connected to either you or the seller.

When you submitted your offer to the seller the document you signed, the Offer to Purchase, contained a series of dates that will serve as the roadmap from offer acceptance to closing. The Offer to Purchase documents can vary from state to state but the steps included are mostly similar. Below we will take you through what to expect:

Funding “Earnest Money”

  • Earnest money is an important part of your real estate transaction and tells the seller that you are serious about purchasing their property and essentially give you some “skin in the game.” There are several times throughout the escrow process when you can exit the transaction (typically at inspection and financing deadlines) and preserve your earnest money deposit but if those are not utilized then any other reasons for exiting the contract will typically cause you to forfeit your earnest money. In your “Offer to Purchase,” you included a figure of how much your earnest money deposit would be (typically 1-2% of the total home purchase price.)  Once your offer is accepted it is your responsibility to transfer the funds to the Title Company where it will be held in the escrow account and eventually credited towards the sale.

Home Inspection

  • After transferring your earnest money deposit the next step is to schedule a home inspection with an independent, licensed, and insured inspector to go through the property to look for potential future repairs, maintenance issues, or unknown deferred maintenance that the seller has not disclosed. Make sure to join the inspector at the inspection and ask a lot of questions, write down everything that needs to be addressed and get with a contractor to determine how much it will cost to make all those repairs. Then have your real estate professional negotiate with the seller for, hopefully, some additional fixes and/or cash credits at closing.  If you and the seller are unable to come to agree on terms to address the inspection items this is typically one of your chances to terminate the contract while still retaining your earnest money deposit.

Mortgage Financing

  • It is a good idea to keep your mortgage representative updated on your progress on finding a home so that they are ready to move forward quickly once your offer is accepted. Shortly after contracts are signed your lender will order an appraisal on the home to get a professional opinion on how much the home is worth and what they will lend you on that particular home.  They will also ask for any additional information they need to get your loan formalized by the lender.  Once that happens you will receive documents that outline exactly how much they will lend you, what your interest rate, points, and loan terms will be.  If for some reason you are unable to secure financing that is satisfactory, this is the next deadline at which you can terminate the contract while still retaining your earnest money deposit.

Homeowners Insurance

  • You will need to get with an insurance agent to discuss and secure the proper type and amount of insurance that you will need. This is especially true if you are paying cash as you don’t have the bank personnel to double-check that you are properly insuring yourself.  Your mortgage lender will require you to provide the documentation of this coverage prior to the close of the sale.

Closing Escrow

As items move forward, you will eventually be ready to sign documents, fund the down payment, and verify the lender costs match the good faith estimate you were given. Make sure to read and review all these documents before you sign off that they are acceptable to you. Your lender will transfer the funds to the escrow company who will finalize all the paperwork and you are now the proud owner of your new home!

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