Importance of Escrow and Settlement When Buying a New Home
Finding your dream house in a suitable neighborhood and hiring a real estate agent to handle the transaction is only the first step in buying a new home. The major work starts when you actually have to handover the payment to the seller and go to settlement. In addition to a Realtor you may also need the services of an escrow agent who will handle the details and paperwork involved in the deal. The importance of escrow arises from the fact that you cannot trust anyone blindly. A trustworthy escrow company keeps your money till the closing on your new home so that you can be sure that your money is in safe hands.
Escrow is beneficial for both parties – the seller and the buyer. The seller is assured by the third party escrow agent that they will receive payment on closing and the buyer knows that the loan they acquired to pay for the house is out of harm’s way. You are not the owner of a house if you have not gone to settlement on it. The settlement or closing is handled by the escrow agent who has a few roles to play in this context. This agent has to get in touch with all parties involved: the buyer and the seller, the title insurance company, and the lender.
The role of an escrow agent is to ensure that all parties are satisfied by the end of the day. The lender is able to get a good mortgage, the buyer ends up with a clean title, and the seller is able to pay off their mortgage. All funds accumulate in the escrow account until everything is settled and all parties agree on the terms and conditions. During this time the seller performs any repair work or fulfills other responsibilities agreed upon in the purchase contract.
Work with your Realtor to see that everything is handled properly and nothing is overlooked. Normally the purchase contract has a closing date until that day the escrow agent remains involved in the process. On the closing date everything has to be settled, documents have to be signed by both parties and money has to be handed over to the seller. In case there is a dispute between the two parties, this date may be postponed. It is also mentioned in the sales contract when exactly the buyer can move in the newly-bought home and this is not necessarily the same as the closing date.
Mortgage settlement costs vary from location to location and they can be fairly high in certain circumstances. The total fee is calculated by adding the charges for transfer of ownership, amount that has to be paid to local and state governments, and costs associated with getting a mortgage. At closing, you get different disclosure statements to determine the actual cost of the loan transaction and to deposit just the required amount in escrow accounts for payment of property insurance and taxes.
An escrow agent is not an attorney; however, there are some attorneys who offer escrow and settlement services.