Escrow generally means a deposit of funds or other instrument by a neutral third party for the delivery to another party when a condition has been meet. In real estate transactions, escrow refers to the portion of a mortgage payment set aside to pay for taxes and hazard insurance, commonly referred to as “T&I”. If you have a real estate agent, allow a real estate agent to explain to you what this real estate term really means.

This is what happens in a buying or selling transaction – when a buyer has been looking through properties for sale sale and has finally chosen a particular house, the interested buyer will then draft a written offer to the homeowner or seller. A purchase agreement has been made when the home seller agrees. Your real estate agent will get earnest money from you and deposit it in an escrow account to show that you are really serious and interested in buying the property. The property will then be remove from the listing and the earnest money will go the home seller to make up for the times that the house was reserved and wasn’t made available to other home buyers if you decide that you won’t buy the property anymore.

Wait for your lender too appraise the property that you want to buy. This step should not be missed because this will allow you to recover your losses in case you failed on your mortgage payments in the future. But if the appraisal is way too low that you expected it to be then you may call for a second appraisal. Another option when the appraisal is too low is to pay for the difference to cover for the possible loss. However, you can cancel the purchase agreement if the appraisal is way too low than what you are expecting it to be. You may really like the house, but looking into the future, you may have a problem paying for its mortgage later.

There are other things associated in before the escrow process closes like having an inspection, applying for an insurance and having the title of the property checked. So when you have signed the purchase agreement and closed the escrow process, this means that you have done all necessary steps to make sure the property is in good condition and insurable. The closing also means transferring of money for the down payment and the start of paying for your loan.

So, when does the escrow process takes place? The process sets in the moment the house owner accepts the offer of a buyer on his property that if for sale or in other words when the buying and selling process has been already completed. Escrow guarantees by having a neutral third party to keep important documents, money or other materials related to the completion of the sale, that there is a fair business between the buyer the seller.

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