How Does the Escrow Process Work When Buying a Home?

When buying a home, your offer will often be submitted along with a deposit check, also referred to as earnest money.  This assures the seller you’re a serious buyer.  Your earnest money is held by an escrow company until the closing.  An escrow company is an impartial third party that ensures everything is in order and all requirements of the contract satisfied before the property and the funds are exchanged at closing.  The seller has no access to your deposit money until the escrow company releases it.

The Basics of An Escrow Process

1. The Appraisal.  In order to approve your loan, the lender will send a licensed home appraiser to the home to determine the fair market value of the property.  Having the home appraised not only helps keep the selling price fair compared to other homes in the area, it also ensures the home loan isn’t greater than the value of the home.
2. Meeting all financing requirements.  The Lender will communicate with you on any additional requirements that must be satisfied in order for the loan to be processed.
3. Home Inspections.  The bank will want to know as much about the condition of the property as possible before giving a mortgage loan.  This helps ensure the bank will get their money back if the buyer defaults on mortgage payments.  Home inspectors look at the general condition of the house, structure, plumbing and electrical, as well as any pest or other damage.
4. Home Insurance. When securing a mortgage for the purchase of your home, you will need to provide proof of purchased home insurance.  Home insurance not only protects you in case the home is destroyed, it also gives your lender assurance they will be paid, as well.
5. A Title Search.  A Title search is an important part of the process, as it verifies that the house comes with a clean title and no one else, besides the seller, can claim ownership. A Title search checks for any property liens against the home by creditors, whether all taxes are current, and if anyone else has a claim to the home and would need to be considered during the transaction.
   
6. Title Insurance.  Title insurance is a required part of securing a mortgage and closing on the house, as it covers the new homeowner in case anything gets missed during the title search.

The escrow process may vary from state to state, but the main goal of it is to make sure your earnest money securely awaits closing while everything is prepared for the transaction. The process takes time and can be confusing, especially for first-time home buyers, so don’t hesitate to reach out to your real estate agent or lender with any questions.