The escrow process, which is also known as closing or settlement, is the endgame of the home-buying process. It is when the buyer, seller and other necessary parties get together to seal the deal.
While your real estate agent and lender may assist you during the process, you should prepare yourself by knowing what to expect once you are in the thick of it.
To do so, brush up on these five prominent hurdles you’ll face during the escrow process.
Escrow Steps for Success
1. Have a Solid Contract
The sales contract or purchase agreement is the blueprint for the escrow process. The real estate agent or attorney typically writes the contract. It should clearly state the terms of the deal and what must occur before escrow closes and the property changes hands. It should not contain blank spaces.
The contract will include details about these specifics:
What happens if the agreement fails
What personal property is included in the deal
The closing date
What happens if escrow is delayed
Who pays what cost
2. Clear Contingencies
Contingencies are contractual conditions that must be met before the contract becomes official. Inspection, appraisal, and financing are common examples, although contingencies can be written for any event or issue. Contingencies come with a time limit to complete the task.
Once each contingency is completed, the buyer and seller should sign a document removing the contingency from the contract.
3. Review Title Reports
Typically, there are two title reports: a preliminary report and a final report with title insurance. Review the preliminary report to verify the legal description of the property and to learn about any liens, encumbrances or other items affecting the property’s title.
Later, with the final title report, make sure the title is clear and the title or escrow agent knows how you want to take title to the property. Common titles are as follows:
Tenancy in common
Tenants by entirety
4. Track Transaction Costs
In the end, title and escrow costs are combined with mortgage and other transaction costs on federally mandated closing documents. Obtain a Good Faith Estimate to gauge what these costs may be. Then compare them to the HUD-1 Settlement Statement, which is the final line-by-line list of all mortgage and closing costs.
If there are significant discrepancies between the GFE and the HUD-1 Settlement Statement, ask about them, as they may be open for dispute.
5. Be Prepared on Closing Day