ESCROW FAQs

An escrow is an arrangement in which a neutral and impartial third part, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.

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People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain perquisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyers until the seller’s requirements, including receipt of the purchase price are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.

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An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing of the transaction.

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The escrow process was developed to help facilitate the sale or purchase real estate. The escrow holder accomplishes this by:

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• Acting as the impartial “stake-holder”, or depository of documents and funds

• Processing and coordinating the flow of documents and funds

• Keep all parties informed of progress on the escrow

• Responding to the lender’s requirements

• Securing a title insurance policy

• Obtaining approvals of reports and documents from the parties as required

• Prorating and adjusting insurance, taxes, rents, etc.

• Recording the deed and loan documents

• Maintaining security and accountability of monies owed and owing

Preparing to Work with Your New Lender

As you begin the home buying process, one of your important first steps is to take a serious look at your finances. This means putting your “financial house” in order and pre-qualifying for your new financing before you ever make a formal application for a new loan.

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There are several factors which demonstrate your credit worthiness and your ability to repay your loan, including your income, savings, debts, and credit history. Consider the following actions you might take to provide evidence to your lender that you are a good risk.

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• Your Income – Your lender will verify your income to be sure you can manage your new loan payments. If you anticipate receiving a pay increase in the near future, ask your employer to verify this. Consider taking a position with your company that might offer you a higher salary, and if your spouse is unemployed, a job for that spouse might be worth considering as a way to enhance your monthly income.

• Your Savings – Your lender may look at your savings account balance to see the amount of your cash-on-hand. Long-term, consistent savings demonstrates your spending discipline and an ability to produce sufficient down payment. Reduce expenses as much as possible and postpone making major purchases. Plan a budget and discipline yourself to stick to it.

• Your Debts – Keep your credit as clean as possible and consult with your lender about consolidating credit card accounts. This takes time to appear on your credit report, so early attention to this detail is a good idea. Pay down existing loans if you can.

• Your Credit History – Make all payments on time, fix any credit problems you may have, and do not overdraw your checking account.

• Once you choose a lender, be sure to provide that information to your Escrow Officer. As the escrow progresses, the Escrow Officer will be in contact with your lender to check on the approval process and to be sure that any required escrow documents are supplied promptly. When your loan is approved, your Escrow Officer will coordinate your document signing appointment and describe the timeline for the final steps leading to your closing. Your real estate agent, your lender, and your Escrow Officer will partner with you to guide you through the financing process from start to finish.