Here, we've laid out what you need to know about closing day and escrows for a successful home purchase.
Understanding closing and escrow accounts
Closing, also known as settlement, occurs when both you and the seller finish signing insurance and ownership paperwork, and the house becomes yours legally.
A home buying agreement usually closes 4-6 weeks after it is signed. During this time, your funds are kept in escrow pending the fulfillment of all contractual obligations, such as the home inspection, repairs, and appraisal. You can depend on your agent for guidance throughout the closing process.
Your escrow officer meets with you a few days before closing to get your signature on the loan document and other paperwork involved in the purchase. This is when they give you all the details regarding your escrow account, including how much your closing costs will be if the escrow closes as scheduled.
This info is also known as TRID Closing Disclosure and just lets you know everything concerning the mortgage before you buy in. it's important always to check your escrow account details thoroughly. Here is a look at important things you need to know about escrow account closing statements.
Escrow accounts and real estate
Escrow accounts are often used to purchase a home. In this situation, the buyer places the down payment on the house in the escrow account that a neutral third party usually manages. This assures the seller that the buyer can make payments, and therefore, they go on with house appraisals and inspections confidently. Once all contingencies have been met to the buyer's satisfaction, the seller gets the funds in the escrow.
When closing your mortgage, you can also set up an escrow account to hold your future property tax and homeowners insurance payments. The account will be funded by part of your regular mortgage payments.
Thus, setting up an escrow account results in higher payments, but it also means you won't have to break a sweat about yearly property tax and insurance bills because they will already have been settled through your monthly escrow deposits.
What are escrow credits and debits?
An escrow account keeps track of all the funds and assets involved in purchasing your home and is managed by an escrow officer. Money that passes through escrow can be classified as credit or debit.
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Escrow Credit - Any funds/assets you place into your escrow is credit. This includes your initial deposit. Even your loan is a credit. If you also negotiate with the seller for credits such as property taxes and compensation for repair works, that money appears on your account as credit.
- Escrow Debit - When the escrow officer makes payments out of the escrow account, they appear debited. Your debits include all expenses, such as what you pay the seller for the home, loan fees, home inspection fees, and homeowners insurance premiums.
How are escrow accounts handled at closing?
After closing the deal, the escrow officer releases the funds. However, there are cases where funds are retained in the escrow even after the deal has closed.
This is what's known as escrow holdback and could happen if you allow the seller more time to stay in the house as they prepare to move out. It could also happen if you discovered an issue with the house just before the closing.
If you use an escrow account for insurance and taxes, your lender collects and keeps part of your regular mortgage payments to pay your tax and insurance in the escrow account. You can't predict the amount that will be required because insurance premiums and tax bills keep changing.
Usually, the escrow officer uses what you paid the year before to determine the amount to collect for the following year's bills. The money is collected two months before it's due, and if they find out later that they collected excess, you'll get an escrow refund. That's why it's wise always to check your escrow account statement to make sure debits and credits are reflected correctly.
Sometimes even escrow officers make mistakes, especially when dealing with December escrows when everyone's minds are elsewhere, and the people involved in transactions are slow to meet deadlines or even forget to sign papers.
Yes, buying a house in December can be advantageous because many buyers leave the market, and your bargaining power increases. You can also get reasonable tax deductions.
However, keep a keen eye on every detail because this is a crazy season. You want to stay connected to your loan officer and the escrow agent, so you don't miss signing anything on time. If you plan on leaving town for a holiday, let them know in advance.
