Understanding how Escrow works – Hanley Agency, Inc., Pittsburgh, PA

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First-Time Home Buying: Closing

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Escrow: A neutral, third party (known as the escrow holder or the escrow agent) is hired to assure your house closes on time and the money exchanging part of closing goes smoothly. When funds are held by a third party in a transaction between a buyer and a seller, it's in escrow. An everyday way to think of what an escrow company does is to compare it to PayPal for Internet purchases.

The escrow holder makes sure that all terms and conditions of the seller's and buyer's agreement are completed prior to the sale being finished. This includes receiving funds and paperwork, completing required forms, and seeking out the release documents for any loans or liens that have been cleared with the transaction, assuring you have a free title to your home before the negotiated price is fully paid.

These are the legal documents that escrow agents usually compile:

Requests for payment for various services to be paid out of escrow funds
Loan documents
Tax statements
Fire and other insurance policies
Title insurance policies
Terms of sale and any seller-assisted financing

You're ready to close when each step of the done in escrow process. All expenses like title insurance, inspections and real estate commissions are paid. Title to the property is then transferred to you as new homeowner and appropriate title insurance is issued as noted in the escrow policy.

When closing is completely finished, you'll make a payment to the escrow agent. I'll keep you updated on what comes next.

The Escrow Holder Will:

Write escrow guidelines
Request title research
Comply with lender's standards as written in the escrow agreement
Accept funds from the buyer
Prorate interest, insurance, tax and other payments according to instructions
Record deeds and other legal documents as instructed
Obtain title insurance policy
Close escrow when all terms of agreement of seller and buyer have been met
Disburse funds and finish instructions

The Escrow Holder Will Not:

Advise you - the escrow company must stay at a fair, third-party status
Dispense opinions about future tax estimations

The Escrow Holder Will:		The Escrow Holder Won't:
Prepare escrow instructions Perform a title search Comply with the bank's requirements as written in the escrow agreement Receive payments from the buyer Prorate insurance, tax, interest and other payments according to guidelines Record deeds and other paperwork as instructed Request title insurance policy Close escrow when all terms of agreement of seller and buyer are met Disburse funds and finalize instructions		Advise you - the escrow agent stays at an impartial, third-party status Offer opinions about tax implications

Mortgage Escrow Account

Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.

This is a simple outline of the escrow process. Your individual methods may vary depending on your bank and your escrow company.

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