Blog

Welcome to the BeSmartee blog. Enjoy a wide selection of articles related to mortgages, the industry, and real estate.

A Timeline of the Home Buying Escrow Process

By Laura Agadoni · Feb 1, 2016 · Real Estate

A Timeline of the Home Buying Escrow Process

Image courtesy of Pixabay, Open Chain

A good way to understand escrow is to think of it as a financial middleman. With an escrow account, a third party holds onto funds from a first party for a second party. You might wonder why the first party doesn't simply give the money to the second party, and that's a good question.

When there's a big transaction, such as the purchase of a house, many things need to take place and get done before the sale can be completed … if the sale can even be completed. In the case of buying a house, during the time between the seller's acceptance of the buyer's offer and the transfer of ownership, deposit money and documents related to the sale are put into an escrow account, usually held by an attorney or a title company. Here is how the escrow timeline works.

1. You Hand Over Earnest Money

Earnest means "serious," so when you hand over earnest money, you're indicating that you're serious about buying the house. Sellers need to have some assurance from you before they take the house off the market. They need to know that you really want the house and won't just back out of the deal. It's typical to put down between 1% and 3% of the purchase price of the home as earnest money. Your real estate agent can guide you on what would be applicable for your area. If you buy the house, you don't lose your earnest money; it goes toward your down payment. If you simply decide you don't want the house, you'll probably lose your earnest money. If you don't get a mortgage loan after being preapproved for one and, therefore, can't buy the house, you might get your earnest money back. If you discover major problems with the house that the seller didn't disclose, you'll likely get your deposit back after canceling the deal. If the seller changes their mind and backs out, you generally will get your earnest money back.

2. Have the House Inspected

A house inspection is optional, but it's highly recommended that you get the house inspected by a professional housing inspector before you buy it. Otherwise, you might unknowingly buy a money pit. The seller is supposed to disclose any known issues with the house, but there could be issues that the seller doesn't know about or doesn't disclose. Your home inspector can give you a general overview of the house. Sometimes, the inspector might recommend you get another professional opinion, such as one from a licensed contractor, an exterminator who can spot pests, or an environmental inspector who can check for mold or radon issues.

3. You Need to Get the Loan

You might have been preapproved for a loan, but that isn't the same as actually getting the loan. A preapproval is simply a letter from your bank that you qualify for a loan. It's likely you'll get the loan, but as the saying goes, "It ain't over until the fat lady sings." In other words, you don't have the loan just yet. Your loan goes through an underwriting process after appraisal, and this process, depending on your lender, could take a few days or a few weeks. Once the underwriter approves the loan, you can proceed.

4. The House Gets Appraised

If you take out a mortgage to buy a house, your lender will order an appraisal, which is a valuation of the property. (If you're paying cash for the house, this step doesn't apply.) Lenders loan a certain percentage of the appraisal price of the home. But the appraised price could be quite different from the price you and the seller agreed on. If the house appraised for more than the deal you struck, that's good news for you; it means you're getting a good deal. It's also good if the house appraises for around the same price as the one you and the seller agreed on. Your deal with the lender should go through in both of those cases. But if the house appraises for lower than the price you agreed to pay, you won't get the full loan you were counting on: Lenders loan money based on the appraised price, not the agreed-on price. So, you would either need to come up with more money to put down on the house or try to renegotiate the price with the seller. It's a good idea to have a contingency clause attached to your offer that lets you out of the deal if the house appraises low.

5. Choose Your Insurance Company

When you get a mortgage loan, you must have homeowners insurance. If you don't pick a company, your lender will pick one for you. That might work out fine for you, but it's better if you shop around to get the best rate. For example, you might wish to bundle your homeowners insurance with your auto insurance to save some money.

Your lender also requires you to have title insurance. If there's a lien on the house that was discovered after you bought the house, your title insurance, not you, would pay it. Or, if for some reason, the seller doesn't own the property free and clear and can't sell the house to you, title insurance reimburses you. This could happen because the seller is scamming you outright by saying they own the house when they are really only renting it, for example. Or it could be a mistake from not having everyone sign off on the paperwork. Either way, having title insurance protects you.

6. Read Your Closing Disclosure

You'll get a settlement form three days before closing, called the Closing Disclosure. It lists all the closing costs you'll need to pay at closing along with all the money you've already put in, such as the earnest money. The settlement form will also show how much you owe the seller. You, your real estate agent, and the attorney at closing should look over this document to make sure everything on it is correct.

7. Attend Closing

The actual buying of the house is called the closing. You'll sign all the legal documents at closing. You then pay the closing costs and the down payment. Your lender sends the balance owed to the escrow office. After that's completed, the escrow office pays the seller and transfers the deed of the house to your name, making you a proud homeowner. Now, you need to make sure you pay your mortgage each month.

Another Type of Escrow: Mortgage Escrow

When it comes to real estate, there is another type of escrow besides the kind used for the purchase of a house. This other type is called a mortgage escrow account. Many homeowners prefer to pay their property taxes, homeowners insurance, and sometimes, their homeowners association dues, monthly instead of in one lump sum each year. With an escrow account, you pay an added fee with your mortgage payment. This extra money goes into an escrow account, and your mortgage company uses the money in escrow to pay those bills.


Real Estate Commission: Explained, Revealed and Compared
By Arvin Sahakian · Aug 17, 2015 · Real Estate Data

Real estate agents receive commissions from home buyers and sellers, collectively earning over $50 Billion per year. Learn how commission amounts are set, who pays them, and how they work in this article. Read more.

197,736

California Property Tax: Complete List by County 2014-2015
By Tim Nguyen · Nov 26, 2014 · Real Estate Data

List of secured property tax rates for all counties of California fiscal year for 2014-2015. Read more.

126,863

California Proposition 60 and 90: Your Complete Guide
By Tim Nguyen · Nov 28, 2014 · Real Estate Data

If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home. Read more.

66,402

What to Expect During the Home Loan Closing Process
By Arvin Sahakian · Feb 24, 2015 · Mortgage

You've heard the term used before, but what does loan closing mean? Find out all you need to know about the process. Read more.

54,310

The Surge in Foreign Real Estate Investment in the United States
By Laura Agadoni · Feb 24, 2016 · Real Estate

Foreign real estate investment in the United States, both commercial and residential, is a huge phenomenon that is only expected to accelerate, maybe even to skyrocket, in 2016. Read more.

50,343

Houston vs. Dallas: Which One is Better to Live in?
By Amanda Curry · Oct 11, 2016 · Real Estate

Houston Vs. Dallas? If you are considering moving to either of these major metropolitan areas, we've created a resource to help you make the decision process a little easier. Read more.

49,087

5 Illegal Borrowing Activities: Things That Are Illegal When You Try to Get a Home Loan
By Laura Agadoni · Jan 22, 2016 · Mortgage

Whenever there is money to be made or money to be spent, some unscrupulous folks will take advantage, trying to game the system or commit all-out fraud. Read more.

48,433

Does Homeowners Insurance Pay Off your Mortgage if the House is Burned Down?
By Amanda Curry · Feb 8, 2017 · Mortgage

In this article, we explore how homeowners insurance works and what happens in the event of a house fire. Read more.

25,809

16 Ways to Improve Your Debt-to-Income (DTI) Ratio
By Veronica Nguyen · Nov 29, 2014 · Mortgage

Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips. Read more.

25,338

5 Tips on Getting a Mortgage Loan after Bankruptcy
By Veronica Nguyen · Apr 15, 2015 · Mortgage

A bankruptcy will make it very difficult to attain a home loan. These 5 tips will help you re-establish your credit quickly in order to qualify for a home loan. Read more.

20,782