You have found the perfect house, and the seller accepted your offer. The excitement build and you and want to move in tomorrow. Not so fast; the escrow process is about to keep you from walking over that threshold. In Utah the average time in escrow is 30-45 days. What is escrow? Why is it making you wait? Read on to learn more.
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What is Escrow?
Buying a home is definitely a process. You hire your C4 Elite Real Estate Team Buyer’s agent, get a pre-qualification letter from your lender, and begin the online search. Finally, you and your agent go look at houses until you find the perfect one. Together, you write a strong offer that your agent negotiates with the selling agent. The seller accepts and you are FINALLY under contract with the home of your dreams. You can move out of that apartment where the neighbors above you are up all night. Wait…Now you have wait for escrow? What is escrow and what does it do for you while you are buying a home?
Escrow is like the hub of a wheel that brings all the parties together in a transaction. It is a neutral third party which holds all the money, titles, personal property, or anything of value until all transactions are successfully completed. This process lowers of potential risk of fraud and helps you to stay up to date with all parties and transactions.
After the seller accepts your offer to buy their home, the escrow process begins. Escrow includes depositing necessary monies, documents and instructions into an account. These items stay in the account while the buyer and seller fulfill their obligations. The process ensures that funds are not distributed until both buyer and seller meet the terms and conditions of the purchase agreement. To keep things fair and impartial, a neutral party, with no vested interest in the house — also known as an escrow agent — coordinates the closing process.
Opening an Escrow Account
You create an escrow account with an escrow agent. Your C4 Elite real estate agent works with several professional and amazing escrow officers. Therefore, they will handle setting up the escrow account. In Utah, we are considered a Split state for settlement. Settlement is the day you sign paperwork with your escrow officer and Buyer’s agent. The buyer and the seller, in most cases, choose their own escrow companies to work with. An exception to this is when the buyer is paying with cash. In that instance, the buyer and seller must use the sellers Escrow company.
However, in traditional transactions, your buyer’s agent will open escrow with a title company they know and trust. The seller’s agent does the same thing. Both sides work together to ensure that money, titles, etc., are ready to go on the day of Settlement. On that day, the buyer will sign paperwork with their escrow officer and the seller will sign with theirs. The two title companies coordinate paperwork and wiring funds so that the transaction has a smooth and easy closing.
What Goes Into an Escrow Account?
An escrow account (or an impound account), is a special account that holds the money owed for expenses like insurance premiums and property taxes. If you are buying a home, your lender might collect a certain amount of money and deposit it into your escrow account during the closing process. The actual dollar amount that goes into an escrow account is based on what insurance premiums and taxes average out to on a monthly basis. You may have to pay up to six months’ worth of property taxes and maybe even a year’s worth of insurance up front. Your lender should be able to walk you through these numbers.
A monthly payment is added to your mortgage bill and analyzed once a year to cover any increases in taxes or insurance premiums. The total monthly mortgage payment is called PITI – Principle, Interest, Taxes and Insurance. Convenience is arguably the best thing about using an escrow account. Having just one single payment to worry about each month means you do not have set up multiple automated payments to several different companies each month. If you live in a community that has a homeowner’s association, you may be able to add these fees into the escrow account to streamline your monthly budget even further. However, in Utah, most buyers do have to pay the Home Owners Association separately.
Do I Need an Escrow Account?
Lenders differ on escrow. In some cases, you can avoid escrow. Of course, if you pay cash for a home, you did not use a lender. In this case, you will need to set up payments for taxes and insurance with those agencies on your own. Automatic payments can be set up for both in most cases. Additionally, some lenders may allow you to pay your own taxes property and home insurance premiums, especially if your loan-to-value ratio is below 80 percent. If you are considering paying your own escrows, I highly recommend discussing this option with your lender. This is another good question to ask them when you at your initial meeting, However, once an escrow requirement is in place, it can be difficult to persuade a lender to cancel it. In my 11 years as a Real Estate agent, I have not seen a buyer go without an escrow account for the convenience mentioned above.
Hire that Referee!!
Finally, the escrow officer is a disinterested (or neutral) third party who does not care whether the buyer or seller comes out ahead. The job of an escrow service is simply to ensure that everybody sticks to their end of the bargain. When you agree to buy or sell something, you agree to do certain things: The buyer will pay the agreed upon amount by a specific time, and the seller will provide the asset being sold. Be sure your Buyer’s agent sets you up with a good referee when purchasing a home. The escrow company should provide that service. They will ensure that everybody does what they agree to do, and act as a middleman to safeguard assets in the process.
Home Buying Can Be Easy
The agents at C4 Elite Real Estate team strive to unsure the entire process of buying a home, start to finish, is stress free. Bumps in the road do happen. However, with our experience and team of professionals behind us, you can rest easy knowing your dream house is just around the next corner. Call today to find out how to start the Home Buying process.