UNDERSTANDING ESCROW: TIPS FROM AN ESCROW EXPERT
You’ve carefully selected the right house, mulled over loan options, and built up enthusiasm in anticipation of making your homeownership dream a reality. Now, you may be wary of the next step in the process: escrow. At this point, escrow may feel out of your hands–and perhaps a little stressful. What additional costs are involved? How long will it take? It’s completely normal to find this stage in the homebuying experience to be a little overwhelming.
Here, we’ll help you understand the important aspects of escrow, why it is a necessary step in the home buying journey, and clear up any misconceptions that may be preventing you from popping that champagne. To help clear things up, we’ve invited Shea Homes® Southern California escrow expert Julie Ontiveros to answer some of the tough questions and provide clarity to what it means to be “in escrow.”
WHAT IS THE ESCROW PROCESS?
The most common misconception about escrow is, in essence, the overcomplication of the process. In reality, the concept is quite simple: escrow is a series of transactions with which a neutral third party collects, holds, and delivers funds from the sale of a home.
“You can think of escrow as the financial ‘Middleman’, who handles the transference of money and other assets between two parties. There is a lot of upfront information needed, but once all of that is compiled, its smooth sailing from there on,” says Ontiveros.
This means that most of the work is handled by the “middleman” and the homebuyer need only supply information to kickstart the escrow duties.
HOW LONG DOES ESCROW TAKE?
It’s important to remember that each state has different laws governing aspects of escrow, and the time it takes to approve funds in escrow varies depending on the circ*mstances of the purchase. In California and many other states, escrow can close in 30 to 60 days from the moment a closure is decided, though there are many situations that could increase that window.
Julie specifies that, “Some of the factors determining the length of escrow include mortgage pre-approval, underwriting guidelines, and if there are any contingencies and building inspections. When it comes to paying cash, a home can close in as little as a day.”
In some cases, if a home is still under construction, escrow will be dependent on either the completion and inspection of the home and/or the funding capabilities of the lender. For re-sale homes, Julie describes that conditions “…can be as simple as the buyers asking for the seller to throw in a refrigerator.”
WHAT ARE THE ESCROW CLOSING FEES?
Escrow provides the seller with a promise of payment by instructing the buyer to pay slightly more than they would in an initial mortgage payment with loan closing costs. This safety precaution benefits both parties by ensuring money is available for fees and, in some cases, the first year of mortgage payments. It’s important to note that the sum of escrow fees and loan closing costs are known simply as “closing costs.”
Additionally, there are fees stemming from escrow itself. These fees, according to Julie, are “… paid to the title company, escrow company, or attorney overseeing the closing of the real estate transaction. Escrow fees can vary depending upon what state you live in. Here in Southern California, escrow charges are based on the sales price of the property.”
While ultimately, in some states, the fees are the home buyer’s responsibility, it’s comforting to know that you’ll be duly notified about what you owe–and how much you owe. Julie provides a list of closing costs that you may be informed of at the end of the escrow process.
Potential Closing Costs After Escrow
fees in connection with obtaining a new loan, part of loan closing costs
fees from paying off an old loan, also part of loan closing costs
prepaid property taxes providedby the title company
documentary transfer tax, which is a county tax that can vary per county, which may not be applicable in all cases
recording fees and notary fees, which vary per state, and may not be applicable in some cases
home warranties
insurance premiums providedby the title company
title insurance providedby the title company if the buyer chooses to purchase it
HOA fees providedby the title company
Note that not all of these fees are be applicable to your home purchase, especially when considering your state and local laws. If you have specific questions, be sure to consult a tax professional or real estate attorney to garner information about applicable laws in your area. Being aware and prepared for closing costs and escrow fees will help reduce financial anxiety and help you focus on the fun things, like living room design and what to do with that flex-room.
ADDITIONAL ESCROW QUESTIONS TO CONSIDER
Being “in escrow” means that you’re on your way to owning your dream home. You can keep up the excitement by staying involved and aware of each step. “Home buying is an emotional experience and very personal to each buyer.
What Does it Mean When a House Falls out of Escrow?
If a property falls out of escrow, it doesn’t always mean that the deal cannot be made. Sometimes it just means the process will take longer and additional information is required to pursue the deal.
In a perfect world, escrow can complete without a hitch. However, being realistic about complications that arise is the responsible choice. Julie notes that, “There are several reasons why escrow can fall through. The buyer can’t sell their current home...the buyers are unable obtain loan approval, bank appraisal issues, qualifying issues, and sometimes the buyer experiences remorse. Many reasons listed above are completely controllable while others are not.”
What Should I Not do During Escrow?
While in escrow the following is advised for home buyers:
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
A prospective homebuyer can educate themselves to make smart choices that prevent a complicated situation. With Shea, Julie adds, “Our Sales team is very good at prepping the homebuyers and setting realistic expectations for the transaction. If the buyers are aware of the common reasons why deals fall through, it will put them in a much better position.”
SHEA HOMES ESCROW PROCESS
While you cannot skip the escrow process, you can certainly seek guidance to ensure you’re well-informed. “Shea Homes educates our customers upfront about the escrow process as a whole and continues to guide them through step by step. The homebuyer will be working with several points of contact, and we want to make sure they are aware of what is needed to have a successful closing. We are here to answer questions at any point in the process,” says Julie.
In a perfect world, escrow can complete without a hitch. However, being realistic about complications that arise is the responsible choice. Julie notes that, “There are several reasons why escrow can fall through. The buyer can’t sell their current home...the buyers are unable obtain loan approval, bank appraisal issues, qualifying issues, and sometimes the buyer experiences remorse. Many reasons listed above are completely controllable while others are not.”
A prospective homebuyer can educate themselves to make smart choices that prevent a complicated situation. With Shea, Julie adds, “Our Sales team is very good at prepping the homebuyers and setting realistic expectations for the transaction. If the buyers are aware of the common reasons why deals fall through, it will put them in a much better position.”
Buying a home with SheaHomesmeans you’ll be well informed each step of the way. Remember: the key to staying stress-free during escrow is preparation and education. As Julie summarizes, “We know there is a level of anxiety when buying a home, but we don’t want the buyer to lose sight that this is an exciting time. Minimizing the stress is all about preparation. We want the buyers to be fully educated, so they can relax and enjoy the process.”
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