Buying a home has a unique set of challenges, part of the transaction usually involves an escrow. This article explains the escrow process and how escrow works. After all of the contingencies have been removed or satisfied, your loan has been finally approved and documents have been drawn, you are now ready to close the escrow. Here are some of the things that you should think about in advance of closing.
When do I sign escrow instructions and where do I do this?
Your escrow officer or myself will contact you to make an appointment for you to sign your escrow instructions and final loan papers. At this time, the escrow officer will also tell you the amount of money you will need (in addition to your loan funds). Your loan funds will be sent directly to the escrow by the lender. You may sign your escrow instructions and loan documents at a title company office, your real estate agent’s office or some other location agreed upon by all parties.
What should I look out for during the final walk-through?
Prior to your closing-day escrow appointment, if provided in your Purchase Agreement, you will have the chance to perform, with your agent, a walk-through. This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as the results of any work the seller has agreed to do in response to the inspection’s findings. Any problems discovered previously that you find uncorrected which the seller agreed to correct, should be brought up prior to closing.
In order for escrow to close, you must provide what is known as “Good Funds.” This means that escrow can close:
• On the same day as your deposit if the final down payment and closing funds are deposited by cash or electronic transfer. (“wired funds”)
• On the next business day after the business day of the deposit, if the funds were deposited by cashier’s check teller’s check or certified check.
• If the payment is made by personal or business check, when the deposit is made available for withdrawal by depositors. Depositing banks may hold these types of funds for up to three business days for most “local” items and up to seven business days for “non-local” items.
The Escrow Appointment
Once your loan is approved, you will be asked to go to the Title Company to sign the loan documents and escrow instructions that specify disposition of your loan funds. You will sign these documents in the presence of a notary public. When you’ve signed everything, your lender will make one final review of the documents and conditions for closing. Once completed, the lender will send the loan funds to escrow. Often, lenders require three business days before the loan is funded. This is a list of items you will need in preparation for the appointment to sign escrow papers:
• Identification — One of the following forms of identification must be presented at the signing of escrow in order for the signature to be notarized: a current driver’s license, passport, State of California Department of Motor Vehicles ID card.
• Cashier’s Check — You need a cashier’s check or a certified check issued by a California (or your state) or your financial institution made payable to the title company. If using a personal check, the title company may delay the closing until the check has cleared.
•Fire and Hazard Insurance — You must have fire and hazard insurance in place before the lender will send the money to fund the loan. Whenever you buy a home, you must have insurance. Provide your escrow officer with the insurance agent’s name and contact information so they can make sure that the policy complies with your lender’s requirements.
What’s the next step after I’ve completed my sign-off?
After you have signed all the necessary instructions and documents, the escrow officer will return them to the lender for a final review. Upon completion, the lender advises your escrow officer that the loan is ready to be funded.
What is an “escrow closing?”
Once all the conditions of the escrow have been satisfied, the escrow officer advises you the date the escrow will close and takes cares of the technical and financial details. The culmination of the transaction, an escrow closing signifies legal transfer of title from the seller to you. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow officer’s receipt of loan funds. This completes the transaction and signifies the “close of escrow.”
What do I get at closing?
Escrow will record the deed of trust, disburse the funds, provide both parties with a final financial accounting in the form of a settlement statement, and close the escrow. Settlement Statement, HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing)
• Truth-in-Lending Statement
• Mortgage Note
• Mortgage or Deed of Trust
• Keys to your new home
What can I expect to happen on closing day?
You’ll be asked to present your paid San Jose homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc. Once you’re sure you understand all the documentation, you’ll sign the mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You’ll pay the lender’s agent all closing costs and, in turn, the lender will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the County Recorder’s office. At that point, you officially will be a homeowner.
Disbursement of Funds Held in Escrow
In some cases, the escrow agent will be instructed to hold funds in escrow to pay off obligations, which may not be completed until after the close. For example, funds may be set aside to correct a structural problem, remodeling or termite repair work. Upon completion of the project, the escrow agent, having received proper documentation and releases will disburse the reserved funds.
When will I receive the deed?
The original deed to your home will be mailed directly to you at your new home by the County Recorder’s office. This usually takes several weeks and may take longer depending on regional activity.
After the close…
If the funds from the new home loan are being used to pay off an existing loan in San Jose or elsewhere, (generally, if you are selling one property and buying another), the old lender is required by law to issue a full reconveyance (release) of its loan. As soon as the deed of reconveyance removing the previous deed of trust is received, it must be recorded and the original will be returned to you. This may take several weeks. However, this delay is normal, and is nothing to be concerned about.
Your San Jose lender may retain this loan in its own portfolio or may sell the loan to either a private or public agency, such as the Federal National Mortgage Association (Fannie Mae). In either case, you will receive specific instructions as to how to make your loan payments
Contacts us today with questions about escrow.