Escrow ensures the conditions of the real estate transaction have been met before the property and/or money change hands.
A Trusted Intermediary
Making a very large purchase, such as a house, causes buyers, sellers and lenders to seek reassurance about all the security measures that are in place to protect the funds involved in the closing transaction. Transferring large sums of money and finalizing the details of your sale needs to be done safely and in compliance with the latest security and privacy standards. To help minimize risks during real estate transactions, the escrow/settlement process was developed to protect the buyer, seller and lender.
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An escrow account is basically a temporary pass through account held by the escrow holder. The escrow holder is a neutral third party that holds funds and related documents in a secure manner while the parties work through the details of the real estate transaction.
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A house that has yet to be transferred from seller to buyer is considered "in escrow." When the seller of a property accepts an offer from a buyer, the process of escrow begins.
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The escrow process starts when a party to a real estate transaction (seller, seller’s agent, buyer or buyer’s agent) opens the escrow after a written sale agreement is reached. Upon opening, the escrow holder should be provided with the terms of the sale and the information necessary to carry out tasks. The escrow holder’s duties and the timing of key tasks vary between states.
While the process can vary from one state to the next, several steps are pretty common. Any of the inspections necessary will take place and your lender will have the home appraised as well. The escrow officer will assign a number to the account and the earnest money deposit, and any specific instructions related to the sale. Those instructions might include requirements for home and flood insurance, any inspections necessary or required by the lender, and anything else that is expected before the sale of the property can happen. There will be a title search and title insurance should be purchased for both the lender and the buyer.
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Do not make large purchases which could be viewed as debt.
Do not apply to or open any new lines of credit.
Do not make finance related changes, like a new job or bank