Did you know that, as of 2022, the percentage of Americans who own a home is 65.8%? This means that the number of Americans who own homes is around 230 million Americans. Additionally, the top three states that have the highest homeownership are West Virginia, Maine, and Minnesota.
If you’re one of the many Americans who’s a homeowner and you’re about to sell your home, or if you’re about to become a homeowner, something you might be wondering about is the close of escrow process.
However, if it’s your first time going through the escrow process, you might be feeling stressed. How can you be sure that you’re doing it right?
Fortunately, in this article, we’ll review the escrow process closing timeline. Finally, you can go through this process the right way and ensure that the home buying or selling process goes smoothly. Read on to learn more.
What is escrow?
To understand what close of escrow is, you first need to understand what escrow is. Escrow is one of the financial accounts that are present when the home buying process is occurring. There are three of these financial accounts.
One is the buyer’s financial account. Another is the seller’s financial account.
As for the escrow account, this is a third, and separate, account. This account holds funds and does so until all of the sale’s required terms are met.
The word “escrow” makes a reference to the third party that’s neutral and holds these funds (and property) until the official closing of the deal occurs. Note that escrow might still be relevant after the completion of the sale.
Depending on the type of mortgage, your lender might have a requirement for you regarding escrow. They might require you to retain a year of insurance and taxes in escrow.
What is close of escrow?
Close of escrow is when a real estate deal is finalized, and ownership of the property is transferred from the seller to the buyer. It’s like the finish line of the buying or selling process.
Additionally, all third-party costs that are outstanding are settled. Some examples of these costs are HOA fees and taxes.
The close of escrow steps
The escrow timeline requires the completion of several steps. After you’ve received and accepted the purchase agreement, you and the other party (the buyer and seller or vice-versa) will complete steps to work toward completion of the close of escrow process.
Choosing an escrow company
The first step you need to take is choosing an escrow company. The other party and you will have to come to an agreement when choosing it. If you’ve been working with a real estate agent, they might know of a company or their broker might hold the funds.
Once you’ve chosen a company, you’ll send the sale’s details to the escrow agent. These details will include all the agents’ contact details (who are involved with the sale), commission details, and property details.
They’ll also include the legal names (of all the parties that are involved) and the purchase price the parties have agreed upon.
Buyer providing the earnest money
After the buyer and seller have signed the purchase agreement, the homebuyer will provide an earnest money deposit. Essentially, this is a security deposit type that demonstrates to the seller that the buyer is serious about purchasing the property.
Next, the escrow agent will deposit this earnest money (into the escrow account). Because they’re the third party the escrow agent will have additional responsibilities.
These responsibilities include safekeeping keys, funds, and documents. Once the parties have fulfilled the agreement, there are more responsibilities they have.
These include dispersing the funds and guiding the filing and signing of transactional documents.
Reviewing and approving the seller’s disclosure
The seller’s disclosure is a document. This document lists all the property’s known defects and problems. The reason it is provided is to aim to protect the seller and buyer, as well as to encourage that the sale is completed with full awareness.
If you’re the buyer, one of our escrow tips is to review this document carefully. This is because, once the document has been signed, it won’t be possible to back out of the sale because of any listed defects.
Completing all appraisals and inspections
The next step is completing all appraisals and inspections. Many lenders will require an appraisal to take place, and a homebuyer might or might not want a property inspection. If the property has any major problems, it’s during this time that the buyer should make a request.
This request should be that the seller fixes the issues or that they change the home’s purchase price (to make up for the issues).
When the buyer makes the request, it’s important to give it a timeline, which would impact on the escrow process length. It could also impact whether the sale goes through at all.
This is because the seller can back out of the sale if these repairs aren’t completed by the date they’ve agreed upon with the buyer.
Reviewing escrow documents
Once the appraisal and inspection have been completed in such a way that they satisfy both the seller and buyer, the buyer will complete this step. If you’re the buyer, we recommend that, after you’ve received these documents, to review them carefully.
You might do this with a real estate attorney. At this time, if you’re the buyer, you’ll also have to provide a cashier’s check.
This cashier’s check covers the lending fees, closing costs, and downpayment.
Inspecting the property one last time
Once the buyer and seller parties have submitted all the necessary documents and they’ve been approved, the escrow company will provide these parties with an expected close date. On the morning of this date (or the night the day preceding it), the buyer will inspect the property one last time.
This is so that they can be sure that the property is in the same shape it was when they made the offer. The idea behind this is to protect the buyer.
If they identify a problem or problems after close of escrow has occurred, they might have little remediation.
Usually, it’s unlikely that the buyer will be able to back out at this point. However, if there is major damage, they might be able to attempt to come up with a solution with the seller.
The buyer might also be able to renegotiate (and hold the funds) until the seller deals with any of the issues the buyer has found during the final property inspection.
Meeting and signing the closing documents
In this final step, the buyer, seller, title company, escrow company, and all agents will meet. Then, they’ll sign all the closing documents required. Note that, as we mentioned above, some lenders will have additional requirements before it’s possible to close the sale.
For this reason, the answer to the question, “How long does escrow take?” is that it can depend, in part, on lender requirements.
The close of escrow documents
When it comes to the documents you need in order to close escrow, they depend on how the seller will be funding the purchase. If they’re paying cash for the home, they’ll need a transfer deed. Then, they’ll sign the deed.
Next, they’ll have it notarized and filed. At this point, the buyer will be ready for the process of close of escrow to begin.
However, for homebuyers that are getting a mortgage to buy their home, the documents they’ll have to use are different. Note that they’ll still need the transfer deed like in the other case.
The additional documents they’ll need are the bill of sale (a list of all the items the sale includes), the seller’s affidavit, the signed mortgage deed, the updated mortgage application, and the closing disclosure.
Note that the closing disclosure document varies, as what it looks like depends on the lender. Additionally, the lender might require additional documents. This depends on the title complexity and loan type.
Need more help?
Now that you’ve learned how the close of escrow process works, you might need more information. Maybe you want to learn more about one specific part of the process or you want to understand other parts of the home buying process that come before escrow.
Whatever information you need, we can help. At iBuyer.com, we’re experts when it comes to home buying and home selling.
We also have an iBuying service that you can use, making it possible for you to get offers instantly on your home.