Everything Buyers Need to Know About Escrow
Congratulations! Your offer to buy a home just got accepted. Now that you're on the path to becoming a homeowner, you might be wondering, "What's next?" In this blog post, we'll take you through all the steps during the escrow process, discussing the various stages and helping you prepare for what to expect.
Step 1: Earnest Money Deposit (EMD)
The very first thing that needs to be done is the Earnest Money Deposit (EMD). This is the initial deposit you make in escrow after your contract is accepted by the seller. Typically, you have a 3-business day period to make this deposit. However, it's common to shorten this period to just 1 business day in some markets. Your escrow agent will provide you with wiring instructions for your EMD, usually through a secure email. Always confirm these instructions over the phone and ensure they match the bank's name. Wire fraud is a real concern, so take necessary precautions.
Step 2: Escrow - What to Expect
During the escrow period, you'll work on finalizing your loan approval, performing buyer diligence, and making preparations for moving into your new home. This is also the time when you might want to conduct inspections, even if your offer is non-contingent. Keep in mind that a non-contingent offer means you've already done your investigations, and if you find something during inspections, the seller may not be obligated to make repairs. Coordinate repairs, fumigation, and any updates with the seller's agent.
Step 3: Contingencies and How to Remove Them
In most cases, buyer contingencies are not common, but if you have them, you'll need to remove them within the specified time. This is done explicitly with a contingency removal form. If contingencies aren't satisfied, you'll need to discuss the next steps, like requesting an extension or canceling the agreement.
Step 4: The Closing Process
As you move through the escrow process, there are several key steps to be aware of:
- Contract acceptance
- Deposit wired to escrow
- Sending the contract and preliminary title report to your lender
- Appraisal ordered and scheduled by the lender
- Buyer investigations
- Appraisal completion
- Satisfying loan conditions
- Loan approval
- Contingency removal if applicable
- Closing disclosure sent to escrow (must be sent 3 days before buyers signing)
- Loan docs sent to title company
- Buyer signs
- Buyer brings remaining down payment funds to escrow
- Buyer conducts final walk-through of property
- Lender funds the loan (one day before closing date)
- Escrow closes
- Completing Transaction Paperwork
After closing, you'll need to review and sign various documents associated with the transaction. Ensure all signatures are in order and all required information is in your files. If you have questions about any document, don't hesitate to reach out.
Lender and Appraisal
Your lender and appraisal play critical roles in the home buying process. The lender will require a ratified contract and a preliminary title report. It's essential to select a lender quickly and ensure they can meet the agreed-upon close of escrow date.
If you're purchasing a single-family home, you'll need homeowners insurance. Your lender will require the home to be insured from the closing date onwards. The insurance company may want to inspect the home and may inquire about flood zone status. If the home is in a flood zone, you might need a separate flood insurance policy. For condos or townhomes, HO-6 insurance is usually required for interior damage.
Expect regular updates throughout the escrow process. You'll be working closely with your lender to meet their requirements. Appraisal results, loan conditions, and the loan approval status will all be communicated to you. As the transaction close date approaches, we'll help coordinate important events like signing with the escrow company, the final walk-through, utility transfers, and the closing of escrow.
Escrow and Signing
When your loan documents arrive at the title company, you can schedule your buyer sign-off. In California, we sign our escrow paperwork prior to closing and authorize the escrow company to perform certain actions on our behalf. Expect to sign a few days before the actual closing date.
Some of the documents you'll sign at escrow will require a notary, especially the loan documents. Notarization must be done in person and by a notary within the US. If you plan to be outside the US during escrow, special arrangements need to be made.
The escrow officer will schedule your sign-off once everything is ready to be signed. This can be done at the escrow office or anywhere in the US via a remote notary, but be aware that using a remote notary incurs an additional cost.
During your sign-off, you'll review the closing statement with all the closing costs and sign your loan paperwork. Since you won't have much time to review all the documents during signing, it's best to request them in advance from the escrow officer for a smooth signing process.
Documents in the Sign-Off
- Estimated Closing Statement with Closing Costs
- Tax Paperwork
- Escrow Authorization Paperwork
- Lender’s Loan Documents
- Some Disclosures
Your estimated closing statement will provide the amount you need to bring to escrow. This amount includes your down payment, closing costs, minus the money already in escrow from your Earnest Money Deposit (EMD). This amount should be at the escrow company one day prior to the close of escrow. Escrow will work with you on how to wire this money to their bank. Always verify wiring instructions with your escrow officer and avoid using unverified email instructions.
Funding the Loan
After you've signed the loan documents, the lender will send the file to the funder to prepare the loan to be funded. Escrow will collaborate closely with the lender to fund the loan. Typically, the loan is funded the day before the closing date, but in some cases, it can happen on the same day as closing. Once all the funds are in from the buyer and lender, the transfer documents will be recorded at the county recorder's office. This typically happens on the morning of the next business day, officially marking the Close of Escrow and making the property yours.
We usually receive confirmation of the deed recording around 12 noon.
These are critical steps in the home buying process, and we'll be there to guide you through each milestone. If any issues arise, we'll keep you informed and work towards resolving them. Don't hesitate to reach out if you have any questions or concerns during this phase of the escrow process. Your satisfaction and understanding are our top priorities.
A few days before closing, schedule the transfer of utilities into your name. This includes water, garbage, electricity, and gas. Also, consider your phone and internet providers and alarm companies.
A walk-through will help you verify the property's condition and ensure any requested repairs have been completed. This is your last chance to inspect the home before it becomes yours. Take note of warranties, keys, and other important details provided by the seller.
Your journey doesn't end at closing. Here are some post-closing tasks:
- Seller rentback coordination
- Learning about your new home and its maintenance
- Coordinating fumigation or termite treatments
- Repairs and updates
We're here to support you through this transition into homeownership.
The escrow process can be complex, but we're here to guide you every step of the way. Your primary responsibility as a buyer is to work closely with your lender. Keep in mind that no two escrows are the same, and issues or delays may arise, but we're here to help resolve them and ensure a smooth closing.
We hope this blog post has given you a clear understanding of what to expect during the home-buying escrow process. If you have any questions or need further assistance, please don't hesitate to reach out. Your new home journey is about to begin, and we're here to help you every step of the way.