It is important to understand the escrow process because it is the last stage in buying real estate. This process is part of every real estate purchase and is the time when all the aspects and steps involved with the purchase are finished. Escrow ends when you sign the final purchase and mortgage papers. When buying real estate, you should understand the beginning of the escrow process, the appraisal stage of the process, and the financing stage. Finally, it is important to understand the closing of the escrow process.
The beginning of the escrow process
The escrow process begins when the seller of a property accepts a purchase offer. The time between the acceptance and the final signing is usually two to four weeks. However, this time can be shorter or longer depending on several factors in the escrow process.
The first step involved with escrow is the opening of an escrow account. When a seller accepts a purchase offer, a buyer, in most cases, will need to put down earnest money. This type of deposit shows that you are serious about the purchase of the real estate. A neutral third-party, usually the escrow company, handles this money and puts it into an account.
The appraisal stage of the escrow process
The next step in the escrow process is the appraisal. If you are going to have a mortgage for a property, the bank will have the appraisal done. If you are paying cash, you will need to hire an appraiser for this step. The appraiser looks at the features and condition of the real estate, then compares the results to other properties that have sold recently in the area. The goal of this process is to determine the fair market value of the real estate. If the property appraises at or above the offer price, that’s good. If the appraisal is less than the offer price, there could be trouble with the mortgage company or with the offer.
Many real estate buyers have inspections done while the appraisal process is ongoing. An inspector can do a detailed inspection to assess the condition of the roof, foundation, plumbing, electrical, HVAC, and other aspects of the real estate. Another common inspection is conducted for pests, including termites, carpenter ants, and roaches. If any inspection finds defects, the buyer can ask the seller to remedy the problem. The buyer can also ask for a discount on the purchase price or back out of the deal completely.
A title search should be part of any real estate purchase. A title search company will review the history of the real estate to verify there are no liens or other claims on the real estate. Most lenders require this search before approving any mortgages. Even if a buyer is making the purchase with cash, a title search is necessary to make sure the property title is clean.
The financing stage of the escrow process
The next step in the escrow process is getting financing approval. You can skip this step if you are paying with cash, but most people need a mortgage to make a real estate purchase. The lender will look at the appraisal and verify the value of the property is at or above the offer price. The lender will want to know the results of the inspections and will also need to re-verify the buyer’s credit and financial situation. If everything checks out, the lender will approve the financing for the property.
Before the real estate purchase goes through, the lender will require the buyer to have some form of insurance in place, including homeowner’s insurance for a house. Insurance companies can set-up the policy to begin the moment the final papers are signed, keeping the property safe at all times. You will need to keep this insurance in place until the mortgage is paid off. Having insurance is a good idea even if you don’t have a mortgage.
The closing of the escrow process
Before signing the final escrow papers, you should do a final walk-through of the property. The closing of the escrow process is when you verify the real estate is in the same condition it was when you made the offer. You also need to verify that any items specified in the purchase offer, like appliances or window treatments, are still included with the property.
The last step in this process is to close escrow. You will need to review the HUD-1 form, which outlines the loan terms on the mortgage, if you are getting one. You should compare the form to the offer the lender gave you at the beginning of the escrow process. These forms should look very similar and you should question any changes. If the HUD-1 form is in good order, it is time to sign the final papers. Closing escrow usually involves a large amount of documents. Some of the documents go to the lender, some go to the seller, and some go to the escrow company to be filed with the government. At the end of the signing, you will get a set of keys, making you the new property owner.
If you have any questions about the escrow process, or have any other real estate questions, call the experts at Elite Real Estate Group in Amarillo. Call us at (806) 337-0883 or Contact Us by email to learn more about our services. You can also View Our Listings to see the properties we currently have available in the Texas Panhandle.