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Escrow & the Home Buying Process

Most buyers are unaware about what takes place after they have found their dream home. Most buyers are happy to let their local real estate professional handle all the details with handy referrals. Indeed, this can often prove the most useful because that realtor or local professional will have established connections that will most likely adhere to local laws and regulations governing transactions. Even so, because so much is riding on what amounts to the largest transaction a buyer may ever make, it is often good to have a basic awareness of these details in order to help ensure nothing gets dropped.

Additionally, realtors will usually have protected themselves in saying that they are NOT the appropriate professionals for handling such items, putting the responsibility back onto the buyer. Thus the following escrow awareness may prove helpful on your road to eventual ownership and possession. Aside from a few local state differences, the basic escrow ingredients can be broken down to the Escrow Timeline, the Escrow Deadlines, and Escrow Events.

Escrow Timeline

The 'Under Contract' process takes about a month. The overall 'special effects' or sequence of escrow tasks and events can be found in what we will call the Escrow Timeline listed numerically below. 1. Select your realtor and put something under contract. 2. Choose a Title/Escrow company. Your realtor can often help recommend a reputable company. 3. Apply for a loan with your Mortgage Company, bank or lender. 4. Typically, as instructed, a title company orders a Preliminary Report for the Commitment for Policy of Title Insurance. 5. Your Lender will order an Appraisal. 6. The title company does research to insure the title transfer. 7. The buyer reviews the Sellers Property Condition Disclosure. 8. Buyer conducts Evaluations and Home Inspection(s) of the property. 9. Buyer calls the title company and schedules an appointment for settlement (can take place here or closer to Settlement/Closing). 10. Appraiser is sent to the property by the lender. 11. Buyer gives the lender the name of a home owner's insurance company. 12. Buyer conducts a walk-through of the property. 13. Buyer schedules a date to transfer the utilities. 14. Buyer attends the Settlement (depending on your area, a distinction can be made between Settlement and Closing, where, upon the actual funding and recording or 'Closing' can actually take place AFTER Settlement and the signing of documents by both sides). 15. One to four days after Settlement, Closing or funding and recording can often take place. 16. The buyer's realtor will receive keys and garage door openers upon the seller recognizing receipt of funds and the property having been recorded at the county recorder's office. 17. Title Company issues the policy of title insurance and the buyer should receive it in the mail within 2 months.

Escrow Deadlines

As always, check with local professionals, but a typical home purchase or escrow period takes about 30 days to accomplish and there are six main deadlines to be adhered to:

Application Deadline The above is the date by which you must complete, sign and deliver to the lender the initial loan application and documentation required.

Seller Disclosure Deadline The above is the date by which you receive the Seller's Property Condition Disclosures from the seller. The seller provides information regarding their awareness of the condition of the property giving you additional insight into the home you are purchasing.

Evaluations/Inspections Deadline This deadline date is set by the Buyer and is usually put at about two weeks into the contract, within which time the Buyer can conduct inspections and still back out and retain their earnest money. Inspections will usually include a home inspection by a licensed home inspector. It can also include various other types of inspections, like a termite inspection.

If the buyer elects to cancel the contract before this deadline, depending on the area, both sides may have to sign to have the earnest money funds released to either party. If the contract reads that funds shall return to buyer, then if the earnest money is held by the buyers Brokerage, rather than the title company, sometimes the Broker will be instructed by such contract language to disperse funds. Typically though if any relative uncertainty exists, both signatures may be required for release of those funds. The Buyer usually does not have to specify details as to what part of inspections revealed their reason for backing out.

Before the Evaluations and Inspections Deadline, the buyer has the opportunity to review Sellers Disclosures and conduct a Home Inspection. This typical cost of a Home Inspection is about $300+. A licensed home inspection report provides information regarding the condition of the home... usually surface items under the sinks, cracks in foundation concrete, stucco flaws, temperature of cooling system and relative working order of items and systems are assessed. The Home Inspection is always a good idea adding a measure of professional investigation affecting a MAJOR purchase. The inspector can not get inside walls etc. and usually will tell you about the limitations of the inspection to address everything that could be or go wrong.

Loan Denial Deadline The Loan Denial Deadline is the date by which your lender must have met the financing condition- that is, the loan has passed through underwriting and been approved at the proper amount. If the loan is denied, then in some states AND if it is in writing, the earnest money is refundable, based upon timely notification of that Loan Denial in writing to the Seller of such. All such considerations will be found in the contract in writing in order to exist.

Appraisal Deadline In the case that a loan is being secured on the home, the lender typically requires an appraisal. Why? Well, depending on fine print, it is because if the occupant defaults on loan payments, then when the lender takes the home back and sells the home, then the lender can "make good" on the investment. In other words, they can get their money back. The appraisal deadline is the date by which an appraisal for the house is to be completed, such that the loan can be approved before the Loan Denial Deadline.

Settlement Deadline Depending on your area, Settlement will include various things. It is the date by which all the papers are signed by both buyer and seller. Depending on the area, buyer or seller may or may not sign within the same appointment or even on the same day. Consult with your escrow officer for items required. For the buyer, it will most likely be the day he/she brings all monies or just the balance of money owed to go together with the loan money that usually comes in by way of a wire transfer. Taxes and assessments have been prorated and all fees get paid. All monies required have been approved and are delivered or are being delivered. In some counties or states the wire transfer from the Lender, where there is a loan, can often come in after the buyer and seller have signed, usually that day, but sometimes a day or two after. The seller may or may not request to see all monies in before he/she signs. In theory the escrow company will have had all associated fees debited or credited appropriately, such that a balance sheet should be submitted for your approval before signing. It is usually a good idea to request to your escrow company that you and your realtor or attorney gets this balance sheet or statement a day or two before you go to sign to have an early read on it.

Escrow Events

The following is a list of Escrow Events: Financing Condition or Getting a Loan- Your offer may be contingent upon obtaining financing. In other words, if your financing does not "go through" you can back out of purchasing the home. Usually, the buyer can retain earnest money if this condition is not met and communicated before the Loan Denial Deadline, IF such is written in the contract. Title Insurance - The Commitment for the Policy of Title Insurance outlines a preliminary report of conditions pertaining to the title on the property and the title company's intent to insure it. Depending upon the area, either buyer or seller or both will be responsible for paying title insurance and initiating a call to place for the order. Sometimes the realtor or attorney will help you initiate this. Appraisal - In the case that a loan is being secured on the home, the lender typically requires an appraisal. The cost of the appraisal is paid for by buyer at escrow. Home Owners Insurance - First and foremost, be aware of the chance that your new home may or may not be insurable by home owners insurance, based on past claims on that property and that this may affect your ability to get a loan on it or your ability to resale the home. Thus, you may want to be protected when crafting your offer to make it contingent on the availability of obtaining Home Owners Insurance. Check with your appropriate local professionals. During escrow you may be asked to provide the name of an insurance agent. Your Mortgage Company, bank or lender may be able to assist you. Home Warranty - Sometimes a Home Warranty as provided through a Home Warranty Company will accompany a contract of sale, such that major appliances and possibly some electrical and plumbing items that may go wrong within the first year of possession are covered, although a small deductible will apply at each repair trip. The cost of home warranties varies as also who pays for it, but may range from $240 to $450, sometimes to include or exclude coverage for the air conditioning system. Evaluations and Inspections - You may hire a professional Home Inspector to further give you insight as to the condition of the home. Typically, this will take place outside of escrow and the buyer will pay any inspector outside of escrow. Occasionally, there may be some items that the buyer will want seller to attend to that will extend beyond Closing and Possession by buyer. In such cases, a certain agreed upon sum may be withheld at escrow, with arrangement in writing for dispersment of those funds to take place when repairs or remedies are finished. Walk Through - Just prior to close of escrow, buyer may elect to Walk-Through the property merely to make sure that the condition of the home is the same as it was after inspections or that those items have been attended to. Typically, it is not a time to make further objections that are normally made during Evaluations and Inspections time. In the case of new construction, a walk-through may include more (see copy of the contract), like highlighting to the contractor "touch-up" items. This may or may not affect escrow in terms of monies to be held out from Seller/Contractor for such a time as those items are completed. All items need to be in writing. Taxes - Depending on whether or not property taxes are paid in arrears there will be proration of taxes to take place and to come out in escrow on the settlement sheet of charges or credits to be made to buyer and seller. Utilities - Utilities are transferred usually at the buyer's initiation close to escrow, but are outside escrow. Settlement - The required funds is typically to be paid by cashiers check and made out to the title company name. They will provide you with the required amount. Further information on Settlement is included in the explanation about Settlement Deadlines above. Closing - The closing date for the transaction usually occurs close, if not on Settlement. It can be important to recognize that closing takes place after settlement and that they may not be deemed the same thing. Depending on the county or state, it can be 1-2 days, but no more than 4 days, after the settlement date when the proceeds of the new loan are delivered from the lender to escrow, and the documents have been recorded in the office of the county recorder.

Possession

Depending on the area, actual signing of papers does not necessarily equal ones legal ability to take possession. Depending upon ones area, once all monies are received, both parties have signed AND the title transfer is recorded at the county recorders office, then you are the new owner and can take possession. Be careful about lining your moving truck up until you know that local rules and laws governing possession have been met.

You now are officially the owner of your new home. If a Home warranty has been purchased, their package should arrive within 2 weeks. Your realtor receives keys and garage door openers at this point. Also, the service of your realtor does not have to end there. Often your realtor can help you familiarize yourself to the area and provide various vendor resources for referral.

This friendly expos? of Escrow Steps to Possession should help minimize the chaos and put you well on your way to greater peace of mind and help you to enjoy your Home Buying Process!

Brian Habel is an active full time real estate agent with RE/MAX First Realty in St George Utah- the fastest growing community in the U.S. for over a 5 year period of 2000-2006. His background includes both construction and paraprofessional work as a Child & Family Counselor making for good people skills, sales skills, and housing knowledge. He specializes in cutting edge service and technologies for both finding and selling St George Utah Real Estate - http://www.st-george-realestate.com. Check out Brian's blog at St George Utah Real Estate Blog - http://www.st-george-realestate.com/blog/stgeorgeutahrealestate.html

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