BUYING A HOME: GETTING INTO THE ESCROW PROCESS
You write an offer and the seller accepts it. Deal closed. It is about time to go through the escrow process. Why does a buyer need to undergo this phase?
An escrow company serves as a neutral third party between the buyer and the seller, as well as to ensure all the required measures toward closing are finished correctly and on time. These entities prevent fraudulent acts to happen, such as the seller stealing the money check from you and refuse to sell the property. They will take care of all the money that must change hands between the buyer and the seller, as well as complete the paperwork necessary to close the deal.
Steps may differ from one escrow company to another, but the following are the basic steps:
- Appraisal. The lender will estimate the home’s value. It is better to prepare the check in advance that to wait until closing to pay the fee. Appraisal safeguards the creditor from lending you money that is higher than the house’s worth. In the event the appraiser gives a lower estimate than the house’s purchase price, either the seller will have to agree to reduce the property’s price or buyer will pay for the difference. Otherwise, this won’t materialize. Appraisers also help you by informing you if the house in question is overpriced.
- Financing. Even before the escrow process, you should have secured your financing. However, the lender may ask for additional paperwork if the underwriter requests for it. Better be proactive than sorry. Ask if the lender needs additional papers to obtain the loan.
- Disclosures. Sellers and their agents are mandated to disclose any known problems with the property. However, if the bank owns the house, they need not to do so since they may not have any prior knowledge regarding the house’s condition.
- Home Inspection. This is not a requirement though, but for your peace of mind, you can choose your own inspector. A home inspector will look into the house’s problems that you have not noticed the first time you visit the property. This can protect you against huge (or small), costly repairs in the future and/or give you bargaining power to press the seller lower the price in case of a major repair. Better yet, you may urge the seller to make the repairs or walk away from the deal if the inspection reveals you need to deal with all of these problems.
- Pest Inspection. For bank’s sake, too, administer a pest inspection. After this, you have the option to have the property repaired or simply walk away from the transaction. Also, if the house has sustained substantial structural damage from the termites, the bank will experience difficulty in selling the house. Pest inspections are inexpensive.
- Secondary Inspections. You can have secondary inspections if the previous inspections discovered any potential major problems. Home inspectors can be helpful in finding out problems, but they are generalists. And specialists can thoroughly examine the property’s overall state. This is more expensive than other types of inspections.
- Hazard Report. This is acquired on your behalf, which indicates the details about the property, like if it is near the airport noise zone, flood zone, or any significant danger in the area. If that is the case, you may be obliged to purchase additional insurance.
- Title Search and Title Insurance. Title search seeks to ensure there are no claims to the house other than the current owner’s. If there is a conflict, it must be resolved while in the escrow process to facilitate the transaction. It protects both you and the lender against any false claims to the house in the future.
A piece of advice: Before the escrow process ends, you and your agent will visit the property again to make sure no damage has manifested. And before you buy the property, make sure everything is fixed, financing is secured, and the title is free and clear.